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Absorbtion Rate

As an agent commented in our office meeting today, the true way to determine the length the supply of inventory will last in the community is the rate of absorption. To get that number take a 12 month period. Find how many homes sold over the previous 12 month period, and compare that to how many homes are on the market during the current period. What other ways do you measure how your market is working?

Posted by Rory Siems on 07/18/2006 12:05 PM

Comments (7)

market, absorbtion rate, inventory

7 Comments on Absorbtion Rate

JUL

2006

Am I dividing your numbers to find the absorbtion rate. Could you post the formula?

In our market, we've seen a change in the pace of sales over the past 6 months or so, so I'd use 6 months instead of 12 to get a better picture of where we are. This requires a reasonable amount of data, however, if the projections are going to be realistic.

The formula goes like this:

For previous 12 months:

Average number of weeks a property sits on the market =

52 (weeks in a year) / number of closed escrows over the 12 month period you are measuring.

A 12 month period for an absorption rate is too long, unless your market has been stagnate for 12 months. I would suggest a shorter time.

Absorption rate assumes no other homes are coming on the market, so it's only for the point of time you are calculating.

I use 6 months too

JUL

2006

I do a quick ratio of number of listings over number of pending sales. I track it 3 to 4 times a week. Nothing is more telling than looking at the pending sales dropping and the number of listings increasing as you go through the month. Working my results back into a traditional absorption rate formula my numbers are close.

JUL

2006

In our market, 12 months is to long. I often do 12 months, 6 months, 3 months and 1 month to show how the market is moving. Also, rather than referring to "number of homes sold", you may want to use "real buyers".

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