What Does “Absorption Rate” Mean?
By Brian Madigan LL.B.
This is the rate at which homes are being sold on a monthly basis.
It is based on a particular market area. Assume that there are 2,400 homes listed for sale in a particular market. And, we know that 200 homes are sold every month. That means basically that we have a 12 month supply of inventory.
The rate is calculated as 200/2,400, or 1/12th, or expressed as a decimal .0833.
There are some areas which calculate the relationship somewhat differently. They take current listings at 2,400/200 being the number of current sales. The result is 12, meaning that we have 12 months of inventory.
No matter what, and however you seek to compare the two numbers, it will still take 12 months to get rid of the present inventory.
This is a key factor used by real estate developers when they decide to build a condominium or new subdivision
Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888