Absorption Rate - What is it & is it important? The real estate market is made up of many parts or pieces - like a puzzle. To see the whole picture, you need to look at all the separate pieces. One of the pieces is called an absorption rate. Absorption rates have been around for a long time, but over the past few years was infrequently look at. \I thought I'd write a short entry on my blog to explain what this is and why it's important.
What is an absorption rate? This is a hypothetical estimate of the number of months it would take to sell the inventory of houses on the market. An absorption rate can be by town, county, state or even a neighborhood. Obviously, inventory is replenished, so it would not happen in the real world. The absorption rate is based on sales and current deposit levels. It is generally broken out by price range.
What is an absorption rate used for? When looking at absorption rates, Realtors can see what price range is moving in the given market. For instance, there may be a 3 month supply of homes in the $450,000 to $499,999 price range and a 10 month supply of homes in the $500,000 to $549,999 range. If you were going to list a home for sale, do you think it would sell quicker if it was listed at $495,900 or $509,900? Given the aforementioned absorption rates, it would take 3 times longer to sell the home if priced over $500,000.
Absorption rates are a great tool for builders. When planning a new subdivision or building a new home, the absorption rate will tell a builder what price he should build in. If homes priced between $600,000 and $650,000 are selling with a 2 month inventory supply and homes priced $700,000 to $750,000 have an inventory supply of 8 months, what price range would suggest to the builder?
In conclusion, an absorption rate is a guideline used to assist in pricing homes for sale and to gage how the real estate market is doing.
Contact us for absorption rates for Newtown, CT, Danbury, CT, Brookfield, CT and Bethel, CT. These are updated every each month.