What is Absorption Rate?
Absorption rate is basically a report of inventory amounts & trends. It is important for placing offers, pricing new listings and in general understanding where the market is heading. It shows trends in a "monthly format" which gauges how many months it will take for the market to currently "absorb" all of the invententory.
How is a Buyers Market, Seller's Market or Stable Market
Defined with Absorption Rate?
It's actually quite simple:
- Less than 6 Months of Inventory = Seller's Market
- Around 6 Months of Inventory = Stable Market
- More than 6 Months of Inventory = Buyer's Market
Here is What a Sample Absorption Report Looks Like:
The above report is for the entire Las Vegas Valley (includes Henderson, North Las Vegas and Various Other Enterprises and Townships from Mountain to Mountain in what is considered "the Las Vegas Valley"). It is basically telling the seller or buyer that the Las Vegas Valley is a seller's market because there is less than 6 months of inventory. Trending for prices are currently moderately appreciating. In a buyer's market you should look for an abundance of seller concessions and maybe even depreciation depending on how severe the inventory overstock is.
How is Absorption Figured?
Absorption is figured by taking Active Listings (not Pending or Contingent Listings because they are NOT available listings) and dividing it by the average sold per month. I personally take a 1 month trend (which is abnormal FYI,) a 3 month trend (and divide by 3), a 6 month trend (and divide by 6) and a 12 month trend (and divide by - you get the picture - 12). The trends help show if inventory is INCREASING over the last year or DECREASING. As you can see in the figure above that the trend is fairly stable!
How Can Absorption Trends Help a Buyer or Seller?
Absorption trends help a buyer or seller understand where to put in offers or where to price their home. When I pull comparables on a specific home, I do so in a range of prices.
Lets make an imaginary range on an imaginary house between 150-175K.
A buyer in a buyers market would want to place the offer in the LOW range at $150K, in a seller's market in the HIGH range at $175K and in a stable market - somewhere in between.
A seller in a seller's market would want to price their home when listing in the LOW range of $150K, in a seller's market in the HIGH range of $175K and in a stable market - somewhere in between.
My Personalized CMA INCLUDES Your Subdivision's Absorption Rate & Trends for Your Las Vegas, Henderson or North Las Vegas Area Home!
Because I know you don't want to price it too low and leave money on the table or too high and have it sit on the market! If you have a home that has equity & you are thinking about putting it on the market, please contact me for a free market analysis (including comprehensive marketing plan & net sheet - NO SURPRISES) designed for your home and your goals of moving.
If you like to watch trends in the Las Vegas Area Market, you can visit my blog and view many general and subdivision specific real estate market reports right here!
