The Absorption Rate is One of The Best Indicators of the Health of the Housing Market

The absorption rate indicates the amount of time it takes to sell homes based on the market’s previous performance. The absorption rate can be done for a small geographical area such as a neighborhood or as large as an entire county.

It is the number of competitive houses on the market in a pre-defined area divided by the number of houses that have been selling per month in the same pre-defined area. For example, if 18 houses have sold in the past 3 months, the rate of sale is 6 houses per month. If there are 24 houses that have been listed in the past month, the absorption rate is 4 months. There are 4 months of supply of inventory on the market in the same pre-defined area and it may take 4 months to sell your home!! Here is the math:

(24 houses ÷ 6 houses/month) = 4 months.

Pretty simple.

Are you thinking about selling and want to know more about the market conditions in your neighborhood?

Would you like to know the approximate time it will take to close your property?

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How many months back should you look in calculating absorption rate? It is recommended to go to the most recent 3 months back to determine the rate in which houses are selling and then compare this figure with the previous month’s supply of houses (your competition) to determine the absorption rate. But the real advantage of absorption rate is looking at the trend and seeing if there is an upcoming change in the market.

The general rule is the following:

• Sellers’ market conditions—Absorption rate is 1–4 months
• Normal market conditions—Absorption rate is 5–6 months
• Buyers’ market conditions—Absorption rate is 7+ months

Understanding market conditions is an important factor in setting a price range for your property. It is important to work with a Realtor® who is a Pricing Strategy Advisor and can guide you to getting the most out of your house.

Here is the data for our tri-county area: 

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