Absorption Rate

Absorption rate in the context of real estate refers to the rate at which available properties in a specific real estate market are sold within a given time period. It is usually calculated monthly, but it can be calculated for other durations as well.

The absorption rate is calculated by dividing the total number of available homes by the number of sales per month. The resulting number is the rate at which the current inventory of homes would be sold, or "absorbed," if sales continue at the same pace and no new inventory was added to the market.

For instance, if there are 100 homes on the market and 10 are selling each month, the absorption rate is 10 months. This means at the current pace, without adding any new homes to the market, it would take 10 months to sell all of the existing inventory.

Absorption rate can be a useful indicator of market conditions. A lower absorption rate indicates a seller's market - a situation where demand is high and inventory is low. This often leads to higher home prices. Conversely, a higher absorption rate indicates a buyer's market - a situation where supply is high relative to demand, which can put downward pressure on home prices.