In light of today's New Homes Sales data and Monday's forthcoming Existing Homes Sales report, let's review a term that real estate professionals use to describe housing inventory. Absorption Rate is a real estate term for the length of time required to sell all of a given stock in a given area.
We can use it to determine how quickly homes are selling in a neighborhood, city, or region.
The formula to calculate Absorption Rate is simple:
- Add up the number of homes on the market
- Divide it by the number of homes taken off the market in the past 30 days because offers were accepted for the sale of those homes
For example, if 500 homes are on the market and 89 of these homes received offers in the past 30 days, the absorption rate is 500/89, or 5.6 months.
In general, the smaller the absorption rate, the more seller-friendly the region.
