Absorption Rate is a way to determine if you are in a buyer’s or seller’s market. Absorption Rate is a mathematical equation that tells you how many months in the current market it would take to sell the entire inventory of homes.
Absorption Rate tells you the rate at which the current inventory should be sold. A smaller absorption rate indicates that more homes are being sold than are coming onto the market. A higher absorption rate implies that there are more homes coming onto the market than there are available buyers. Below is a handy chart for comparing absorption rates:
Sellers’ Market – Absorption Rates 1-4;
Neutral Market – Absorption Rates 5-6;
Buyers’ Market – Absorption Rates greater than 7
Your Current Marketplace:
In the past 6 months (not including our current month), 39 homes in Lower Merion sold that were priced between $600,000 and $700,000.
If you divide this number (39) by 6 months, this shows that the average number of homes that have sold per month is equal to 3.9.
52 is the current inventory of homes in your marketplace. If you divide the current inventory of homes (52) by the average number of homes that sold per month (3.9), you will see that it will take 13.33 months to sell the current inventory of homes.
Knowing your area’s Absorption Rate will help you in pricing your home. It will also give you the approximate time it will take your home to sell in the current market. Since you are in a buyer’s market, you want to price your home to be better than the competition. Otherwise, you need improvements in your home that make your home more valuable than the competition.