What is the “Absorption Rate”?

Reblogger Doug Maas
Real Estate Broker/Owner with RE/MAX of Great Falls

Buyers and sellers need to be aware of the local absorption rate when deciding on a price to offer or to list. This is something I share with all my clients.

Original content by Myrl Jeffcoat DRE# 00827565

 

 

It’s not often that I am asked the question, “What is the real estate ‘absorption’ rate?”  But, occasionally the question will arise.

 

The question is one sometimes asked by folks interested in buying or selling real estate; or for those simply interested in current market condition.  The term, “real estate absorption rate” is used to help predict the housing market. 

 

The general public sometimes hears the label used via the media, but they don’t often have the data to translate it into meaningful information.  The real estate absorption rate helps the public more accurately determine whether it is a buyer’s or seller’s housing market.


 

In a “Normal Market” the absorption rate is between 5 and 6 months.  In a “Buyers Market” the absorption rate is higher (7+ months).  But in a “Sellers Market” the absorption rate is lower (1-4 months).

 

A clearer definition of real estate absorption rate is to ascertain the number of months it will take to sell all homes currently on the market.  If the inventory of homes presently on the market is a 12 month supply, it would mean at the current rate of sales, the market would need 12 months to clear the inventory, IF no additional homes came on to the market.

 

Being aware of the real estate absorption rate assists in creating perspective for homebuyers and sellers.  It educates sellers so they can have realistic expectations about pricing their home for the market.  By being competitive in price, they improve their odds of having their home sell quickly.  Sometimes while making an offers on homes, buyers will use the absorption rate to obtain a lower price during negotiation.

 

It should be remembered however, that outside influences may dramatically affect the predictability of real estate absorption rate.  For example, government policies and programs can either stimulate or wither the marketplace.   An improved job market would have a significantly positive effect on the economy, which could spur buying and quickly clear out housing inventory and change the absorption rate picture. 

It is important that serious homebuyers and sellers understand their local real estate market, and trends for their area, in order to make informed decisions regarding their real estate need
s.

 



Real Living Great West Real Estate
(916) 635-0420
http://www.myrljeffcoat.com

 

 

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Rainmaker
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Connie Goodrich
Keller Williams Realty - McKinney, TX
CRS ABR (McKinney Realtor)Texas

I love seeing a post about absorption rate.  I am an appraiser by past background and I use this in all my presentations.  I explain it gives a glimpse of what our inventory looks like and that helps us understand the competition and market perception.  Too many homes and slow moving - need to price very well.  I also like to give them the hotness factor (number of homes for sale in their price level to the number under contract).  That paints a great picture of what the market is doing and makes the seller understand if the home is sitting - no one else is selling in that price level either or if there is a lot moving and you are sitting then your price needs adjustment!  Very nice post!

January 10, 2012 08:45 AM #1
Rainmaker
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Myrl Jeffcoat
GreatWest Realty - Sacramento, CA
Greater Sacramento Real Estate Agent

Doug - Thank you so much for the reblog.  It is greatly appreciated.  I am hopeful the article will help educate buyers and sellers about absorption rate.

January 10, 2012 11:36 AM #2
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Doug Maas

Broker/Owner - REMAX Of Great Falls - MT Real Esta
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