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Knowing your area's Absorption Rate, helps to track trends. Understanding the market and where it is headed is part of our job as real estate professionals.
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96 Comments on How Absorption Rate is figured
Good example of AR Kirstal. I have to disagree with your statement about appraisers doing backwards evals. I would rather refer to our process as historical evaluation. Backwards may give some uneducated people that appraisers are "backwards" in their though process. Historical information is the foundation of every appraisal. Even when projecting into the future historical information is used. for example when determining marketing time, we use historical exposure time relavant to the estimated value in order to estimate future market time based on the same estimated value.
Steve the Appraiser
I Googled 'real estate absorption rate definition' and your post was right smack dab at the top! Great post - even 4 years later!
OK - reading the comments before mine (after I typed the above) I see that other agents area Googling the same thing. haha
Congrats, top of Google search! This is a great resource!
funny - I had a broker ask me to explain this yesterday and the very first thing that came into my mind was your post! I don't think I commented before, but had to now since it obviously left an impression on me.
Glad to be of assistance Courtney!
kk
Good graphic explanation Kristal
balanced to sellers market in Vancouver and Toronto based on the areas i work in.
Hello Kristal! I miss you and your humor and photos! I was looking for a reminder for calculating absorption rate and came upon yours! Interestingly, in this market, the number of sales fluctuates depending on the time of year - I find some months we have many more sales than others (ie: we have more closings in July and August than any other times of the year!) Therefore I find using a yearly average, vs the monthly average, much more helpful.
The formula still works well! Thanks for the help! xo
Thanks for this post way back when!
I was looking for an explanation of the published absorption rate in our market, and your providing the method of calculating explains it perfectly.
Still helping with your words years after written...how awesome!
Dear Kristal,
Just as Courtney Cooper (#84) said above, someone asked me to explain the meaning of absorption rate and the trusty AR search brought me right to you!
Thanks!
Have a happy day -
Lynn
You have managed to explain the concept so much more simply than many others who have tried to teach me this, thank you...
And this is for those that want to figure absorption rate on a weekly basis, which doesn't work in my local market. And the calcuation is wrong IMHO if you are trying to figure out monthly absorption rates, which is what we want to know. Weekly doesn't make a lot of sense, We would like to know the month's supply and the trends are based on 1-5 months of inventory for seller 5-6 months stable, 6+ months buyers
^^^ If you do the calculations in weeks and want to also know months, simply divide the result by 4.333 (which is the average number of weeks in a month).
In the example from the blog, you'd divide the 32.5 week absorption rate by 4.333, and you'd get 7.5 months. You would have come to this same conclusion by simply taking the current number of listings on the market (30,000) and dividing by the previous month's closings (4,000). Voila! 7.5 months for the absorption rate. So, if all you care about is months, you can save a couple of steps in the calculations.
good deal Kristal
will bookmark this absolutely
jimmy phan
Krystal, thank you for another fine blog. I use absorption rate often as it is greatgtool especially for the analytical seller. It helps us determine more accurately the days on the market and how to price the home appropriately. In Real Estate we must depend on many factor's as to determine the best way to market a home. Mark thanks for the reminder of how to calculate for monthly vs. weekly. Use this in 2012 and see if it helps you with your marketing to the seller.
Peggy
Hi Krystal, thanks for sharing. I am a stats guy and that is one I was not sure how to calculate.
This is very easy to follow steps. Thank you for providing them.
That's interesting. I'd like to re-post this, but not sure if that's okay? I'm new to AR and blogging.
Thanks!
Thanks so much. This came in handy for verifying we were doing the calculations correctly for class.