Absorption Rate is defined, calculated, and formulated in many different methods leading to interpretation variations.
It only becomes useful to the clients, prospects, or readers if the data is simple and comprehensible.
Giving them a presentation with three decimal places or a number less than one is not easy to comprehend: See the example below that I extracted from a realtor.com website.
The example above could have been best presented by dividing 33,163 (Number of Sold Homes) by 304 days, giving a result of 109. This means that the average number of homes sold each day is 109 instead of stating: 1 home is sold every .00917 days.
Using the current inventory or number of active homes in the above example of 14,156 and the average sold homes per day of 109, it will take 129.87 or 130 days to deplete the current inventory provided there are no other listings that come up on the market and the current market pace remains the same.
Moreover, there is no short-cut in calculating Absorption Rate.
The formula above does not yield a true picture of the time-frame or period to deplete the total inventory of 30,000 units.
Why? Just because the number of units sold last month is 4,000, does not necessarily mean that 4,000 units were sold consistently for twelve months.
Let’s say that only 3,500 were sold in the first month, 3,000 in the second month, 3,200 in the third month, and 4,000 for each remaining month of the year.
The sum of all units sold for twelve months is 45,700 as opposed to 48,000. Divide 45,700 by 52 weeks to get the number of units sold per week. The result is 879 units sold per week. If we divide the current inventory of 30,000 units by 879, we get the number of weeks it will take to sell the 30,000 units, which is 34 weeks. Again, this will change as listings shore up on the market or if the market shifts significantly.
Summarily, don't take a short cut to calculate the Absorption Rate. It is better absorbed when correct numbers are pulled and utilized.
If you want to use Absorption Rate to explain the market trend more accurately, pull the total number of current listings for one specific town. It would be better if you also set a price range. Then pull the sold homes for a given period. For instance six months. Divide the number of homes sold for six months by six to get the average number of sold homes each month.
Current Inventory: 1233 Homes (Listing Price: between $100K and $300K)
Sold Homes in Six Months: (2/1/2013-7/31/2013): 1380 Homes (Listing Price: between $100K and 300K)
Divide 1380 by 6 months to get the average units sold each month: 1380/6=230 units sold each month
1233/230= it will take 5.27 months to sell the 1233 homes.
In weeks: 1380/26 weeks(6months has 26 weeks)=53.08 units sold each week
1233/53.08=23.23 weeks to sell the 1233 homes.
I hope this helps you absorb the Absorption Rate.