How Do I Calculate Absorption Rate

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Absorption Rate Calculator

Analyze Real Estate Market Velocity

Market Analysis:

Absorption Rate: 0%

Months of Supply: 0 months

Market Condition: –

How to Calculate Absorption Rate

The absorption rate is a critical metric used by real estate professionals, appraisers, and investors to determine how quickly homes are selling in a specific market. It reflects the pace at which the current inventory of available homes will be "absorbed" by buyers.

The Formula

Absorption Rate = (Number of Sold Homes / Time Period) / Current Active Listings

Interpreting the Results

  • Seller's Market: An absorption rate above 20% (or less than 5 months of supply). This indicates high demand and rising prices.
  • Balanced Market: An absorption rate between 15% and 20% (or 5 to 6 months of supply).
  • Buyer's Market: An absorption rate below 15% (or more than 6 months of supply). This indicates high inventory and downward pressure on prices.

Practical Example

Imagine a neighborhood where 120 homes sold over the last 12 months. There are currently 50 homes active on the market.

  1. Calculate average sales per month: 120 / 12 = 10 homes per month.
  2. Divide by active listings: 10 / 50 = 0.20.
  3. Convert to percentage: 0.20 * 100 = 20% Absorption Rate.
  4. Months of Supply: 50 / 10 = 5 Months.
function calculateAbsorption() { var homesSold = parseFloat(document.getElementById('homesSold').value); var timePeriod = parseFloat(document.getElementById('timePeriod').value); var activeListings = parseFloat(document.getElementById('activeListings').value); var resultsArea = document.getElementById('resultsArea'); if (isNaN(homesSold) || isNaN(timePeriod) || isNaN(activeListings) || timePeriod <= 0 || activeListings 20) { conditionText = "Seller's Market (High Demand)"; conditionColor = "#27ae60"; } else if (absorptionRate >= 15) { conditionText = "Balanced Market"; conditionColor = "#f39c12"; } else { conditionText = "Buyer's Market (High Inventory)"; conditionColor = "#e74c3c"; } var conditionSpan = document.getElementById('resCondition'); conditionSpan.innerText = conditionText; conditionSpan.style.color = conditionColor; resultsArea.style.display = "block"; resultsArea.style.borderColor = conditionColor; }

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