The rate at which homes sell in an area; the higher the absorption rate, the faster homes are selling. To calculate the absorption rate, take the number of homes that sold in a month for an area and divide it by the total number of homes for sale at the end of the month. If an area contains homes in two different price ranges, it is often useful to calculate the absorption just for homes in your price range.
For example, if 6 homes sell in June for between $300,000 – 500,000 and 30 are still for sale in that price range on June 30, the absorption rate is 6/30, or 20%. If 1 home sells and 15 remain, the absorption rate is 1/15th, or 6%. The absorption rate is the inverse of the number months of supply of homes in an area: a 20% absorption rate is equivalent to five months of supply, and a 50% absorption rate is equivalent to two months of supply. An absorption rate above 20% has traditionally been associated with a seller’s market, meaning homes are selling fast and the number of months of supply is low; below 15% has been associated with a buyer’s market, meaning homes are selling relatively slowly and the number of months of supply is higher.
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