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Absorption Rate Formula:
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The absorption rate in real estate measures how quickly available properties are sold in a specific market during a given time period. It indicates the balance between supply and demand and helps predict market trends.
The calculator uses the absorption rate formula:
Where:
Explanation: The formula calculates the percentage of inventory that is being absorbed (sold) per month, providing insight into market velocity and pricing pressure.
Details: Absorption rate is crucial for real estate professionals, investors, and home buyers to understand market conditions, make pricing decisions, and develop sales strategies.
Tips: Enter the number of units sold during the period and the current months supply of inventory. Both values must be positive numbers with months supply greater than zero.
Q1: What does a high absorption rate indicate?
A: A high absorption rate (above 20%) indicates a seller's market with high demand and low inventory, often leading to price increases.
Q2: What does a low absorption rate indicate?
A: A low absorption rate (below 15%) indicates a buyer's market with more supply than demand, often leading to price decreases or longer selling times.
Q3: How is months supply calculated?
A: Months supply = (Number of active listings) / (Number of sales per month). It represents how long it would take to sell all current inventory at the current sales pace.
Q4: What is considered a balanced market?
A: A balanced market typically has an absorption rate between 15-20%, indicating stable prices and balanced supply and demand.
Q5: How often should absorption rate be calculated?
A: Monthly calculation is recommended for accurate market analysis, though quarterly calculations can provide broader trends for strategic planning.