Market Absorption – What does that even mean?
There are a lot of words REALTORS® & analysts throw around…
Market Absorption
is one of the most often heard & least understood.
Let’s jump right in to gain an understanding of the absorption rate & what it means to you.
What does that even mean!?
The time (in months) it would take to sell the homes currently listed for sale if no other homes came on the market in the meantime.
If someone tells you the absorption rate is 2.75 then they are saying that it would take 2 months & 3 weeks to sell all of the homes currently for sale (assuming no other homes come onto the market).
Why does it matter to me?
Buyers and Sellers alike benefit from knowing (or having a REALTOR® who knows) where the absorption rate is sitting because it is an indicator for what type of market you are dealing with.
Each market has different approaches for Buyers and Sellers — knowing what market you’re in is one of the most important factors in determining a successful strategy for your real estate transaction.
How do you know what the absorption rate is?
The best & fastest way to find out is to ask a local REALTOR®. If they can’t answer that for you then their finger isn’t on the pulse of the market & you should find a REALTOR® who does know.
You need two key pieces of data:
# of Homes Sold
&
# of Homes Actively For Sale
Once you have the data, the formula for basic absorption is simple:
# For Sale ÷ # Sold = Absorption Rate
Most people do not have access to accurate or up-to-date information on sold homes or the number of active homes which is why contacting a professional is the best way to find out the current rate.
How Does this affect Buyers & Sellers?
The affects depend on the type of market you are in – Buyer, Seller or Balanced. We go into detail on the different types of markets in this post here & it’s worthwhile to brush up on.
You now have a pretty solid understanding of market absorption & how it affects you.
As always, real estate is very localized… there are differences from city to city & even neighbourhood to neighbourhood! Asking a local REALTOR® is the best way to find out what’s going on in your area.
If you are in the Halton or Hamilton-Wentworth & surrounding areas we are always glad to help so please reach out!
Keeping it genuine,
The Edwards Team
The Genuine Blog
