Absorption Rate looks at supply and demand.  There can be an absorption rate at a national level, local level and even a neighborhood level.  Some neighborhoods "absorb" home at a faster pace than other neighborhoods.  How do you calculate an absorption rate?

STEP 1:  Look at the homes SOLD over the past year.  In Cherry Hills, there have been 17 homes sell in the subdivision. 

STEP 2:  Take the homes SOLD over the past year and divide by 12.  This will give you an average of the number of homes sold per month.  In Cherry Hills about 1.44 homes sell per month in the subdivision. 

17 divided by 12 = 1.44

STEP 3:  Look at the number of homes on the ACTIVE market.  In Cherry Hills, there are 8 active listings on the MLS. 

STEP 4:  Take the number of ACTIVE listings and divide by the average number of homes SOLD per month. For our example in Cherry Hills it takes 5.5 months for the current inventory of active homes to be "absorbed."

8 divided by 1.44 = 5.55

The absorption rate in Cherry Hills is 5.5 months or there is 5 months of inventory in Cherry Hills.  Keep in mind that homes are constantly being added to inventory while other homes are sold and are removed from the inventory.  There are some homes that will NEVER sell in the subdivision. 

The consumer is looking for the best VALUE in the marketplace.  If your home is the most expensive home in the subdivision - but it is the best value it WILL sell.  If your home is the lowest price in the subdivision, but is NOT the best value it will NOT sell. 

Thanks,

David Matney, CRS,GRI

Alliance Real Estate