What is an Absorption Rate?

I was talking to a friend the other day and the subject of real estate came up. It seems like these days everyone likes to talk about the real estate market.  This friend wasn’t in the market right now to do anything, instead she was just curious about home values for her Highlands Ranch neighborhood.

If you read my blog regularly then you have likely heard me talking about absorption rates, especially regarding market statistics.  I’ve tried to explain how it relates to home sellers and buyers but it occurred to me that for many, the idea may not be too clear. Basically, absorption rates are derived from dividing the number of active listings by the number of sold listings for a specific period of time.  This is the basic and easiest way to determine absorption rates.  There can be other methods, such as using pending sales, etc…but generally this is it.

So, what can absorption rates tell me and why do I care? Once you’ve done the math, the number you come up with will be the amount of time the local real estate market is absorbing the current inventory.  In other words, this shows how fast are they selling.  Nowadays, this number is typically a number of months of inventory in a particular area.  As a home buyer or home seller this number can provide you a valuable target.  Sellers can determine for themselves how long the market is absorbing homes in their area and then determine how to price and market their own home to be on the front end of that time frame.  Buyers can use absorption rates to help determine the relative strength of a neighborhood and how to price an offer.

I hope this brief explanation helps you understand this key real estate statistic. If you are considering selling or buying a home in the Denver metro area, and you would like to discuss an effective strategy for your success then please contact me, I would love to help.

Steve Scheer, Denver Realty Partners
Real Estate in Denver & The Suburbs

Search all Denver & Denver Suburb Homes Here

If you would like more information on the Denver area or more information on Denver real estate, contact Steve at 720-849-6101 or email at sold@SteveScheer.com .

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About Steve Scheer

Steve is a Colorado real estate agent that represents home buyers and sellers in the Denver metro area and suburbs. He writes here about the local home market as well a few other sites. He has lived in Highlands Ranch since 1995 with his family. You can also find him on Twitter, Facebook and Google Plus.

Comments

  1. Kathy Torline says:

    Good explanation of Absorption Rates, as many people don’t understand what this means and how important it is to understand!

  2. Thanks Kathy. I wanted to keep it straightforward and easy to understand.

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