Finance
What is absorption rate?
Absorption rate measures how quickly available properties are selling in a market, usually expressed as the number of months it would take to sell all current inventory at the recent pace of sales.
It is calculated by dividing active listings by the average number of sales per month. Twelve hundred active listings and two hundred monthly sales gives six months of inventory.
The conventional reading is that under roughly six months favours sellers and over six favours buyers, though the threshold varies by market and property type and should be treated as a rule of thumb rather than a constant.
Absorption rate is most useful segmented. A market can be six months overall while being two months for entry-level homes and eighteen for luxury, and the aggregate figure conceals exactly the information a specific client needs.
Related terms
Days on market counts how long a listing has been actively for sale since it was published. It is used both as a market-health indicator and, by buyers, as a signal of negotiating room.
A comparative market analysis is an agent's estimate of a property's likely selling price, built by comparing it against similar nearby properties that have recently sold, are currently listed, or failed to sell.
A seller's market is one where buyer demand exceeds available inventory, giving sellers pricing power, shorter selling times, and frequently multiple competing offers.
A buyer's market is one where available inventory exceeds demand, giving buyers negotiating leverage on price, terms and repairs, and leaving sellers competing for a smaller pool of purchasers.