Absorption rate is a report of the current inventory and provides information and trends about how many homes per month are selling over the past one year. This is important information for both buyers and sellers.
If you are a buyer and writing offers or a seller and pricing your home to sell, this information provides you with information on what direction the market is going.
Absorption rates show monthly trends, and information about sales for past one month, three months, six months and twelve months. Absorption rate is basically – the length of time it will take to sell all the active listings assuming that no new listings are added. This provides absorption rate.
Here is an example of an absorption rate graph which I include in my monthly market reports.
I recently wrote a post about Balboa Island Market Trends, and this is the graph from that post. I take all the active listings, not the back up or pending as those listings are not available. Then I search for number of sold properties during the same time periods – one month, three months, six months, and twelve months to determine how many homes sold per month.
To calculate the absorption rate, I take the 1 month trend, the 3 month trend which is divided by 3, 6 month trend which is divided by 6, and a 12 month trend which is divided by 12 to determine the months of inventory on the market. What I like about these reports as you can see if the inventory is increasing or decreasing.
To determine whether or not it is a seller’s market or a buyer’s market is as follows:
Less Than 5 Months is a Seller’s Market
5 Months to 7 Months is a Stable Market
7 Months or more is a Buyer’s Market
On the Balboa Island market report, the month of November shows it to be a strong buyer’s market, however that may be cyclical due to the holiday season. The other months over the past year are consistent and show a stable market
This is important information when you are pricing your home to sell, or you are making an offer on a Newport Beach home.
If I can answer any questions about absorption rate, please contact me.