Market Absorption Rate
The Market Absorption Rate shows how many months homes would be available if no additional homes were listed. The “simple math” example would be, if three homes are selling each month and there are nine homes currently listed, we have a three month absorption rate.
The Market Absorption rate doesn’t refer to days on market or how long homes take to sell. Days on market varies depending on the type of home, condition and location. The Absorption Rate tells us if we’re in a buyer’s market or seller’s market.
The graphic below illustrates the type of market that exists with the current supply of homes (the absorption rate). This helps determine the type of existing market 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 happen more often 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 the property.
If you’d like to know the market absorption rate for your area, contact me today!