What is an Absorption Rate and How Does It Affect You?

By
Real Estate Broker Owner with RED Properties NC #129285

Many times when I create the monthly market reports I reference the Absorption Rate.  On listing appointments I mention the Absorption Rate and even use it to assist me with my Competitive Market Analysis.  An Absorption Rate is a great indicator of what is happening in a Absorption Ratelocal real estate market.

An Absorption Rate quite simply is the supply of homes that are on the market.  For instance, if there is an Absorption Rate of 8 is would mean that should NO other homes be listed it would take 8 months for the currently listed homes to sell or to be "absorbed" back into the market.

Typically, a balanced market has an Absorption Rate of 6.  That means that it is neither a Sellers Market nor a Buyers Market.  When you see the Absorption Rate go above 6 then you have entered into a Buyers Market (more homes on the market) and conversely when you see an Absorption Rate dip below a 6 the you are in a Sellers Market (less homes on the market).

A buyer's market means that there are more homes on the market which then in turn means more variety and most likely lower prices due to the competition among the listings.

A seller's market means that there are less homes on the market which then means that prices are most likely higher because there is now a demand for properties.

Absorption RateGiven the current economy it is no surprise that we are seeing abnormally HIGH Absorption Rates all over the country.  In the Raleigh NC area, which includes Wake Forest, we are seeing Absorption Rates as high as 11 in some areas (all price points included).  HOWEVER, when you break that down into price points we are even seeing some Absorption Rates as high as 84.  Currently, there is a Price Point of $400,000 - $599,999 in Fuquay Varina/South Wake County with just that Absorption Rate.  And, yes, that means that if there were NO other homes listed in that price range it would take 84 months (7 years) to sell the current inventory.  In the Wake Forest area our highest Absorption Rate is 72 and that is for the Price Point of $800,000+.

Given that, in general, Absorption Rates are high the most critical thing a home seller can do if they are putting their home on the market is to PRICE IT CORRECTLY.  This is most definitely a Buyers Market and there just isn't much leverage that a seller has.  With so much competition not only does a property need to be priced properly AND COMPETITIVELY but also in TOP condition and staged.  Quite honestly, there is just TOO much competition out there right now to even try and play games if you are serious about selling your home.

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Re-Bloggged 2 times:

Re-Blogged By Re-Blogged At
  1. Anja Kerstens 08/04/2011 07:06 PM
  2. Leah Henderson 08/05/2011 09:55 AM
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Topic:
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Comments 53 New Comment

Rainmaker
633,279
Leesa Finley
RED Properties - Raleigh NC Real Estate
RED Properties

There were quite a few small builders here as well Gary that didn't make it.  The new home inventory was truly staggering - a little more stable now.

August 05, 2011 02:38 PM
Rainmaker
633,279
Leesa Finley
RED Properties - Raleigh NC Real Estate
RED Properties

ROFL!  I was actually going to reference Bounty, Phil but thought better of it.  Perhaps I should have?

August 05, 2011 02:42 PM
Rainmaker
633,279
Leesa Finley
RED Properties - Raleigh NC Real Estate
RED Properties

Thanks for stopping by, Barbara!  You are absolutely correct!  An absorption rate within a sellers price point is VERY helpful during a listing appointment!

August 06, 2011 09:15 AM
Rainmaker
633,279
Leesa Finley
RED Properties - Raleigh NC Real Estate
RED Properties

Certain price points in this area are VERY high, Rosalie, however, the overall Absorption Rate is very attractive compared to other areas of the country.  Our overall 9 is a welcome sight!

August 06, 2011 09:18 AM
Rainmaker
633,279
Leesa Finley
RED Properties - Raleigh NC Real Estate
RED Properties

You are so right, Evelyn!  Once a buyer or seller actually understand WHAT an Absorption Rate is they can better understand how it impacts them.

August 06, 2011 09:19 AM
Rainmaker
633,279

Leesa Finley

RED Properties - Raleigh NC Real Estate
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Welcome to Raleigh NC! Though my blog you can find Homes for Sale in Raleigh NC and the surrounding area, Things To Do in Raleigh NC and so much MORE! I am the Owner/Broker In Charge of R.E.D. Properties and I specialize in Northern Wake County with a focus on Wake Forest NC. It's where I live, it's what I love! Please visit "About Me" for more details on how I can help you!
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