The real estate absorption rate is how fast homes for sale are being sold – or “absorbed” into the market.
Here’s how the math works
Absorption rate is calculated by dividing the number of homes sold each month by the total number of homes on the market.
So, let’s say there are 1,000 homes on the market right now, and about 100 homes sell each month. That means the absorption rate is 10 – meaning it would take 10 months for every home on the market right now to sell.
In general, a balanced market falls between 5-7.
Why the absorption rate matters to us Realtors
Realtors at The Packer Group care about the absorption rate because it’s our job to price, market and sell homes. In markets with a higher absorption rate, agents may have to set lower prices on our listings because homes aren’t selling as quickly. Buyers can take their time choosing because they have lots of options and little competition.
Markets with a low absorption rate are where houses are selling quickly, and buyers are more willing to fork out big bucks for a home they really want – because they know it could sell at any minute to another buyer. Desperate buyers = higher prices and a faster sale.
Appraisers care about absorption rate because it’s something they factor in when determining the value of a property. Again, high absorption rates lead to lower values and lower ones to higher values.
And you should, too
And YOU should care because the real estate absorption rate will affect the price you or a buyer pays for a home. It may also affect your mortgage, if your appraisal turns up something different from the expected amount.
Wondering about your area’s absorption rate?
We’d be happy to chat with you about your area’s absorption rate and what that means to you. Just give us a call now at 734-707-7992.