How Do You Calculate Absorption Rate?
1:11 pm ET
November 30, 2011 May 20, 2015
What does it mean when people talk about the absorption rate when it comes to real estate- Realtor® Leslie Monaco of Greenwood Village, Colorado breaks down what the term means and how it is calculated:
Here is how I calculated the absorption rate for the entire Metro Denver area based on October 2011 Residential/Condo Town Homes Market Data (provided by Metrolist):
- 1. Time Frame = 304 days (total days from January 1, 2011 to October 31, 2011)
- 2. Number of Sold Homes = 33,163 (from January 1, 2011 to October 31, 2011)
- 3. Number of Active Homes = 14,156 (at the end of
October 31, 2011)
- Rate of Home Sales = .00917 – 1 home is sold every .00917 days. This number is found by taking 304/33,163 (Time Frame/Number of Sold Homes)
- Absorption Rate = 4.32 Months. Found by taking 14,156 x .00917 (Number of Active Homes x Rate of Home Sales)
If market conditions do not change and if no new listings come on the market it will take 4.32 months for the current inventory to sell at the current pace of the market. A balanced market’s absorption rate is typically between 5 – 7 months.
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