What Is Absorption Rate and What Can It Tell Us About Our Market?

    What does supply and demand tell us about our market? Let’s find out.

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    Current supply and demand is one component of our market that every buyer, seller, and homeowner should understand. More commonly known in real estate as the absorption rate, supply and demand tells us a lot about how the market is performing.

    Absorption rates in the real estate market are measured by two factors: the number of homes currently on the market and the rate at which homes are selling within a given time frame. In other words, if an average of 10 homes are sold per month in a given market and that market has 50 available listings, this constitutes a five-month absorption rate.

     

    More commonly known in real estate as the absorption rate,
    supply and demand tells us a lot about how the market is performing.

     

    At a five-month absorption rate, we’re in a balanced market. Anything below that level of supply indicates a seller’s market, while anything above that point means we’re in a buyer’s market. The further away from that median point our supply levels go, the hotter our market will be in either direction.

    To illustrate this, take the example of our current local market, where we currently have just 1.5 months of available inventory. If no new listings came to our market in that time, we would completely run out of supply in just six weeks.

    In certain higher price points, though, like those above $650,000, conditions vary. Within that more elevated price range, it is the buyers who have control.

    These market variations across price points and location are a direct result of how supply and demand influences real estate trends.

    If you have any other questions or would like more information, feel free to give us a call or send us an email. We look forward to hearing from you soon.

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