Absorption Rate
The real estate market uses the absorption rate to assess at which rate are available homes sold. This evaluation method is used for specific markets for specific periods of time. To calculate the absorption rate, the number of homes sold during that time is divided by the number of homes available. Through this calculation, it can be identified how fast homes are sold in any area during any period of time. The equation can be reversed to determine how long a house is expected to wait on the market before it is sold.
What is Absorption Rate in Real Estate?
As mentioned above, analyzing the absorption rate can give insight into how fast houses are sold in an area during a period of time. When the absorption rate is analyzed, new homes for sale that enter the market are not considered based on the data available at that time.
The absorption rate can also help market analysts to understand whether they are dealing with a seller’s market or a buyer’s market. If the absorption rate is high, typically above 20%, that means that homes sell fast and that the demand will shrink rapidly. This also means that the real estate market leans towards becoming a seller’s market. However, when the absorption rate is low, usually below 15%, homes don’t sell as fast and might saturate the market into becoming a buyer’s market.
How does the Absorption Rate affect the Real Estate Market?
The sale price is one of the most important effects of the absorption rate on the real estate market. When the market is thriving and homes are sold in no time, then a real estate agent can increase a listing price. When demand is high, prices can rise to take advantage of it. The opposite can happen if the market is struggling. Prices can drop as demand is low.
The absorption rate can also help buyers and sellers decide when it’s best to buy or sell a property. Naturally, a seller’s market with a high absorption rate tells owners to sell as prices are growing, and similarly, a buyer’s market with a low absorption rate tells investors to buy as prices are dropping.
For developers, the absorption rate can signal a need for new housing as demand increases in an area or lack of demand and a drop in construction.
Popular Real Estate Terms
Unroofed, paved area built adjacent to an apartment building or residence. ...
making land more beautiful to look at by adding improvements such as lawns, trees, and bushes. Increases the value of the property. ...
You’ve put your home on the market and are receiving offers. The next logical step is to sell your house to the buyer who offers you the highest amount of money and start the closing ...
A charge based on the asset value of a real estate security portfolio to manage it. For an open-end mutual fond, the management charge is included in the selling cost of the security. ...
Nonprofit charitable entity, such as one providing housing for the homeless. ...
A property title evidencing ownership such as provided in an abstract of title. There are no contingent liabilities or prior unresolved ownership claims. ...
A broad definition of termite clause is a provision in a contract for the sale of real property that gives the purchaser the right, at his or her expense, to have the property inspected for ...
Neighborhood square somewhat resembling a park. It is often owned by town or row house owners situated near the square. ...
Street terminating at one end with only one outlet. A dead end street is not a through street. See also cul de sac. ...
Have a question or comment?
We're here to help.