Learning Everyday Real Estate Terms
Clean that Mess UP!
The absorption rate is an important market gauge. Here is a word picture to help you understand what the absorption rate is.
Imagine you spill a glass of water onto a table. What is your first reaction? Grab a towel to absorb the water. In real estate, the water is the number of new listings coming on the market. The towel is the number of buyers closing on homes.
The Ultimate Question Answered
The absorption rate lets you know how well the market is absorbing the current inventory of listings. The ultimate question the absorption rate answers is, “Is the current inventory level shrinking or growing”?
The Numbers Tell a Story
The absorption rate is found by dividing the number of listings that are sold by the number of new listings that come onto the market. This number is written in a percentage. If the absorption rate is above 50%, that means the inventory level is shrinking. If the absorption rate is below 50%, the market is not absorbing the inventory, and thus the inventory level will be increasing. There are two ways for the absorption rate to increase:
- Less homeowners put their house up for sale.
- More buyers begin buying the available homes currently on the market.
Filed under: Learning Everyday Real Estate Terms, Understanding Real Estate Markets | Tagged: Absorption Rate, Housing Market, Inventory Level, Market Condition, Real Estate, Real Estate Definitions, Real Estate Terms
[...] “Absorption Rate: Learning Everyday Real Estate Terms“. [...]
[...] operates and is tracking market indicators like the current pending ratio, the market’s absorption rate, and inventory levels is vital to keeping your home competively positioned in today’s [...]
[...] always the best indicator on the health of the market. Knowing the inventory level and the absorption rate is really key to gauging the market and pinpointing trends of the market shifting from a [...]