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Absorption Rate Formula:
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The absorption rate is a key real estate metric that measures the rate at which available homes are sold in a specific market during a given time period. It indicates the balance between supply and demand and helps predict market conditions.
The calculator uses the absorption rate formula:
Where:
Interpretation: The absorption rate can be converted to months supply by taking its reciprocal: Months Supply = 1 / Absorption Rate
Details: Absorption rate helps determine whether a market is favoring buyers or sellers. A high absorption rate indicates a seller's market, while a low rate suggests a buyer's market. It's crucial for pricing strategies and market analysis.
Tips: Enter the number of homes sold during the period and the total available listings at the beginning of that period. Both values must be positive numbers, with total listings greater than zero.
Q1: What is a good absorption rate?
A: Typically, an absorption rate above 20% indicates a seller's market, while below 15% suggests a buyer's market. Rates between 15-20% are considered balanced.
Q2: How is months supply interpreted?
A: Less than 4 months supply indicates a seller's market, 4-6 months is balanced, and more than 6 months indicates a buyer's market.
Q3: What time period should be used?
A: Typically monthly or quarterly data is used. The time period should be consistent for accurate comparisons.
Q4: Can absorption rate vary by property type?
A: Yes, absorption rates can vary significantly between different property types (single-family homes, condos, luxury properties) and price ranges.
Q5: How often should absorption rate be calculated?
A: Regular calculation (monthly or quarterly) helps track market trends and make informed real estate decisions.