What Is Absorption Rate and How Is It Important?

What Is Absorption Rate and How Is It Important?

What is Absorption Rate

Absorption Rate is a calculation used to determine the number of months it would take to sell real property.  Very simply, the Absorption Rate is calculated by taking the number of homes sold in a specific time period and dividing it by the number of homes currently on the market.

How is Absorption Rate Important

Absorption Rate estimates the rate at which active listings are selling in a given market. A low absorption rate means that homes are selling slowly, suggesting a buyer’s market, while a high absorption rate means that homes are selling quickly, suggesting a seller’s market.

Why is this important?  In a buyer’s market prices tend to trend downward due to supply exceeding demand.  In a seller’s market prices tend to trend upward due to demand exceeding supply.

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