What is Absorption Rate?

Absorption rate is a report of the current inventory and provides information and trends about how many homes per month are selling over the past one year. This is important information for both buyers and sellers.

If you are a buyer and writing offers or a seller and pricing your home to sell, this information provides you with information on what direction the market is going.

Absorption rates show monthly trends, and information about sales for past one month, three months, six months and twelve months. Absorption rate is basically - the length of time it will take to sell all the active listings assuming that no new listings are added. This provides absorption rate. It is the months of inventory that are on the market. If there are 72 listings in a certain area, and one is selling per month, then the absorption rate would be 72 months.

Here is an example of an absorption rate graph which I include in my monthly market reports.

I recently wrote a post about Balboa Island Market Trends and this is the graph from that post. I take the active listings only - not back up or pending. Then I search for sold listings in the past one month, three months, six months and twelve months to see how many homes per month are sold per month. You can easily see the trends.

To calculate the absorption rate, I take the 1 month, 3 month and divide by 3, 6 month and divide by 5 and 12 month and divide by 12 to determine months of inventory on market. You can see if months are going up or down and great information to give to sellers and to buyers.

To determine whether or not it is a buyer or seller's market is as follows:

Less Than 5 Months is a Seller's Market
5 Months to 7 Months is a Stable Market
7 Months or more is a Buyer's Market

On the Balboa Island market report, the month of November shows it to be a strong buyer's market, however that may be cyclical due to the holiday season. The other months over the past year are consistent and show a stable market

This is important information when you are pricing your home to sell, or you are making an offer on a Newport Beach home.

If I can answer any questions about absorption rate, please contact me.

Originally posted at NewportBeachRealEstateCafe.com