Absorption Rate – What’s It All Mean?

Absorption Rate – What’s It All Mean?

Many times when I create the monthly market reports I reference the Absorption Rate.  On listing appointments I mention the Absorption Rate and even use it to assist me with my Competitive Market Analysis.  An Absorption Rate is a great indicator of what is happening in a local real estate market.

An Absorption Rate quite simply is the supply of homes that are on the market.  For instance, if there is an Absorption Rate of 8 is would mean that should NO other homes be listed it would take 8 months for the currently listed homes to sell or to be “absorbed” back into the market.

Typically, a balanced market has an Absorption Rate of 6.  That means that it is neither a Sellers Market nor a Buyers Market.  When you see the Absorption Rate go above 6 then you have entered into a Buyers Market (more homes on the market) and conversely when you see an Absorption Rate dip below a 6 the you are in a Sellers Market (less homes on the market).

A buyer’s market means that there are more homes on the market which then in turn means more variety and most likely lower prices due to the competition among the listings.

A seller’s market means that there are less homes on the market which then means that prices are most likely higher because there is now a demand for properties.

Given the current economy it is no surprise that we are seeing abnormally HIGH Absorption Rates all over the country.  In the Raleigh NC area, which includes Wake Forest, we are seeing Absorption Rates as high as 11 in some areas (all price points included).  HOWEVER, when you break that down into price points we are even seeing some Absorption Rates as high as 52.  Currently, there is a Price Point of $800,000 + in the South Cary, South West Wake County and Holly Springs area with just that Absorption Rate.  And, yes, that means that if there were NO other homes listed in that price range it would take 52 months to sell the current inventory.  In the Wake Forest area our highest Absorption Rate is 31 and that is for the Price Point of $600,000 – $799,900.

Given that, in general, Absorption Rates are high the most critical thing a home seller can do if they are putting their home on the market is to PRICE IT CORRECTLY.  This is most definitely a Buyers Market and there just isn’t much leverage that a seller has.  With so much competition not only does a property need to be priced properly AND COMPETITIVELY but also in TOP condition and staged.  Quite honestly, there is just TOO much competition out there right now to even try and play games if you are serious about selling your home.