Question:
“How can I tell if the market is slowing down or speeding up?”
Answer:
One way is by looking at changes in the “absorption rate.”
Absorption rate is defined as “the number of months (or weeks) it would take to sell the current inventory of homes at the present rate of sales.”
To determine the absorption rate, you need to know 2 figures:
- How many listings are currently on the market?
- How many listings closed escrow the last three months?
Divide the number of active listings by the average number of listings that closed the past three months. That’s your absorption rate.
For example: If there are 100 homes for sale in a certain area and an average of 5 sold the last three months, that’s an absorption rate of 20 months.
Your next question is probably, “What’s a normal absorption rate?”
Experts on average say it’s about six months.
