ABSORPTION WHAT?? Absorption rate is the rate at which homes are selling in a particular area. The lower the absorption rate the tighter the inventory, the higher the sale prices. Massachusetts has one of the lowest absorption rates in the country. Being home to so many universities, high tech companies and well let's face it - the first home of America.
In order to calculate absorption rate you will need 3 pieces of data.
A Specific Time Frame (for this example let's say that is 90 days)
Number of Sold Homes (for this example let's say that is 10,000 homes)
Number of Active Homes (for this example let's say that is 4,000 homes)
The formula is Time Frame divided by Number of homes Sold = Rate of Homes Sold
90 divided by 10,000 = .009 is the rate of absorption
4,000 times .009 = 36 days or 1.16 months is the absorption rate
What this tells us is that if market conditions do not change that it will take an average of 36 days for the current inventory to sell. A balanced market's absorption rate is 5-7 months.
Kelly Catallo, CRS®