A few days ago I was asked when did the market start to slip in a specific west valley retirement community.  It was relatively easy for me to immediately respond since I watch the market on a daily basis. In my market area, the first "tremor" occurred in June 2005, then the second "tremor" occurred in March 2007. 

I have been charting the daily Absorption Rate for real estate in Sun City Grand, Sun City West and Sun City Arizona daily since early 2005.  Since the Absorption Rate is a snapshot in time, just watching it for a short period will not give you a complete picture.  Calculating Absorption Rates are relatively simple, being dedicated is the difficult part.

1. Determine the total number of listings closed/sold over the past 12 month period. If you are calculating the absorption rate on March 13, 2009, calculate the closed/sold properties since March 14, 2008.

2. Divide the total number of closed/sold listings by 52.

3. Determine the total amount of current listings including all of the active with contingencies as well as all of the pending listings.  Divide that number by the amount determined in number 2.

4. The result is the absorption rate in weeks.

Example:

The total amount of listings sold in a one year period is 437.
Divide 437 by 52 = 6.885  Therefore 6.885 homes sold each week in a one year period.
Let's say that the total about of active listings including pending & contingencies are 358.
Divide 358 by 6.885.
The result is 63.47 weeks  Therefore at the current rate of sales it will take approximately 63.47 weeks before the current inventory will be sold.

Some agents perform the calculations by just using the past 30 day closings.  This formula is alright if you are just looking at the current market value.  Using the one year average is much better especially if you want to track the market over time since it will not skew your results.  May I note that conversely, agents can determine the hiccups or market upticks by using the same method.

Absorption rates are very easy to calculate if you set up an excel spreadsheet with the formulas. Each day thereafter you just need to obtain two numbers, the total number of listings sold in the one year prior period and the total number of current listings.  I try to obtain this information the same time of day, every day.  It takes consistency, patience and rigidity however it results in becoming the local market expert.

Sun City Grand .....I live here, I work here, I know this community!