The Absorption Rate is measured in months of availale property inventory for sale, and is the mathematical representation of the relationship between supply and demand. The total amount of available properties for sale is divided by the total amount of properties sold in the previous timeframe. The resulting number represents the number of months it would take, at that same pace, to sell the entire inventory of properties currently for sale.
The absorption rate is an indicator of the different market types, and calculated as follows
The monthly absorption rate is
___________# of ‘Current Inventory’ for sale________________ (# of ‘Closed Sales’ in ‘Time Period’, divided by, ‘Time Period’ months)Knowing the market conditions is critical in determing the correct strategy in both buying and selling real estate.
1-4 months – Sellers Market. More buyers than sellers, with properties often selling quickly for more than asking price.
5-6 months – Normal Market. Similar number of both buyers and sellers. Properties sell for, or close to asking price.
7+ months – Buyers Market. More sellers than buyers, with homes taking longer to sell, and often selling for much less than asking price, if at all.
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