Blog

What is an Absorption Rate?

The rate at which homes are selling is called the absorption rate, in other words, how many months of inventory  would we have if no more homes were listed for sale. If 3 homes each month are selling and there are 9 homes currently listed, we have a 3 month absorption rate. The Market Absorption rate does NOT mean how many days on market or how long a home takes to sell. Days on market varies depending on the type of home, condition and location. The Absorption Rate tells us whether we’re in a buyer’s, normal or seller’s market. Knowing this can help us adjust our marketing strategy.

The Market Absorption Scale below shows the type of market we’re in given the current supply of homes (absorption rate). This helps you determine the type of market we’re in and how it affects you.

Seller’s Market – In a seller’s market there is less than 5 months’ supply of homes. Since there are fewer homes to choose from, sellers are in control and buyers have to be willing to pay top dollar to get the house they want. Multiple offers are often the norm in a seller’s market.

Normal Market – In a normal market there is a 5-6 month supply of homes. A normal market has a balanced level of inventory where the market is not leaning in either the seller’s or the buyer’s favor.

Buyer’s Market – In a buyer’s market there is more than 6 months’ supply of houses. Buyers are in control since there are so many homes from which to choose. Sellers often have to give an incentive (pay for repairs or closing costs or take a less than full price offer) to buyers to buy their house.