It is imperative to know the absorption rate in your local market to help you, the Realtor, price homes for your client. Clients may want to know, for example, that if 200 houses were listed last month and 100 sold, then the absorption rate is 50% for that month. It is best, however, to calculate the absorption rate for a 3 to 6 months. This will help you in trending and forecasting.
Did you know that even in a hot real estate market, it is rare for absorption rates to increase to over 50%?
The November 14, 2007 issue of Daily Real Estate News show the steps to calculate absorption rates:
"-First, determine the number of homes closed in your market over a specific period - say, 12 months. You can get this data from the MLS.
-Next, divide the number of homes by the number of months in the period - in this case, 12. This calculation gives a per month absorption rate.
-Last, divide the rate into the number of current listings. This yields the months' supply of homes."
Happy home pricing!