Realestate-ese: What is ABSORPTION RATE?

Real Estate Terminology

Real estate agents often talk about what’s going on in the market, using realestate-ese. It can be confusing to buyers and sellers.

One term often used ,which is important for both buyers and sellers to understand, is ABSORPTION RATE.

Simply put, ABSORPTION RATE is the amount of time it would take for the current inventory TO BE ABSORBED by the current rate of sales. In other words, how long it would take the INVENTORY on the market in a given area to all be sold at the rate homes have been selling, say over 1 month or 6 months, IF no more homes came on the market.

In general, we consider a market where there is 6 – 9 months of inventory to be a balanced market – there is a general balance between buyer demand and the number of sales.

As we drop below 6 months of inventory we find that the market favors sellers, and there is a greater chance of appreciation. And more competition for buyers. Above 9 months, it is a buyer’s market and we are more likely to see some depreciation. And sellers have much more competition.