Absorption Rates: What Are They and What They Tell Sellers About the Market

When selling your home, your real estate agent may refer to the “absorption rate”. Absorption rates are calculated by dividing the number of homes currently on the market by the number of homes sold on average in a given time period, usually a month. But why is that a helpful number to know and understand? 

Understanding the current market's absorption rate can help you estimate how long your home will take to sell. With information about absorption rates, you can gauge how competitive the market is and develop a pricing strategy. In addition, if you will be using the funds from the sale of the first home for a new home, it will help you understand how long that transition may take. 

While absorption is simple math, many factors influence it. Here are a few of the most significant. 

FACTORS THAT IMPACT ABSORPTION RATES

Interest Rates
People want to buy a home when they can get the best deal. If average interest rates are high, buyers who aren’t in a hurry may wait a bit. When interest rates are low, however, it motivates people to start applying for loans and shopping around. This adds competition to the buyer’s market and increases the absorption rate.

Mortgage Availability
More competition for mortgages means fewer people will get approved. If mortgages are easy to get, the absorption rate will increase because each new approval adds a buyer to the real estate market. Fewer people can afford homes when mortgages are few and far between, and the absorption rate will drop.

Economic Conditions
A home is a significant investment. When the economy is strong, people feel more comfortable making big purchases like a new home. This increases the absorption rates for local real estate. On the other hand, a poor economy means many people are unemployed or underemployed and can’t afford to make major investments like a new home, lowering the absorption rates.

Supply of Homes
More homes on the market mean more choices for buyers and less competition per home. Limited options, on the other hand, mean homes get snapped up more quickly by competitive buyers. The real estate supply conversely affects absorption rates: more homes means lower absorption, while fewer available homes raise the absorption rate.

Location
All of these factors are location-specific. Potential buyers tend to look in particular areas, making those homes more competitive due to the higher demand. This means more popular areas generally have a higher absorption rate than less desirable ones, even in the same town or region.

Using the Absorption Rate to Your Advantage
An expert real estate agent will know the current absorption rate and help you use this information to sell your home—getting you the most for your home while remaining attractive to buyers.

Our team of expert agents is up-to-date on all cutting-edge information about the market and ready to help you sell your home. Contact us to learn more.