- calendar_month October 9, 2022
- folder Real Estate Knowledge
What is an Absorption Rate?
Speaking from the real estate context, an absorption rate offers a percentage illustrating the amount of homes sold over a set period of time. We can use this figure to gauge whether a market is tipped in favor of the buyer or the seller. For simplicity’s sake, we’re going to be reporting the absorption rate on a monthly basis. And how do we find that figure? The formula is basic enough. To calculate absorption rate, we divide the total number of homes sold (over a month for our purposes) by the total number of homes on the market.
The Threshold for a Healthy Seller’s Market
According to Investopedia, a 20% absorption rate indicates a healthy seller’s market. In this kind of housing market, homes sell rapidly. An absorption rate below 15% indicates a buyer’s market in which homes often stay on the market for a lengthy amount of time. Despite reports of a sluggish housing market due to rising interest rates, our August absorption rates paint a different story. In fact, we don’t have a single neighborhood dipping below the 20% mark, indicating a strong seller’s market down the line.
Anyone’s Market
While numbers don’t lie, they only show us part of the picture. It’s ultimately up to the professionals to connect the dots as JohnHart CEO and principal broker Harout Keuroghlian points out. “Our industry views a 20% absorption rate as an indicator of a seller’s market,” he reaffirms after reviewing the data. “But that’s a blanket number for a wildly diverse and vast market. Who’s to say that number really applies in our specific market? Who’s to say that the buyer’s market here isn’t 40%? The statistics are just a guide, not a rule. It’s up to us to decide what those numbers actually mean.”
So what does it really mean when statistics are just suggestions? “It means that we’re in a market that can be anyone’s,” he answers. “We’re in a market for buyers. A market for sellers. A market for real estate agents.”
While the meaning behind absorption rates may be up for interpretation, they still serve as a valuable barometer for market conditions. Therefore, we’ll continue to bring you monthly updates on the absorption rates in the areas we service. For now, these numbers support that this market is truly what you make it.
