When selling your home, it’s crucial to consider various factors, and one term you might not be familiar with is the “absorption rate.” Understanding this rate for your property before listing is essential, and here’s why.
According to the National Association of Realtors (NAR), a balanced market, where supply meets demand, typically has a six-month supply of houses. In other words, if no additional homes were listed for sale, the existing inventory would meet demand for six months.
Here’s the formula:
- Calculate the monthly sales rate: Total sales in the last six months divided by six.
- Determine the absorption rate: Divide the current total houses for sale by the monthly sales rate.
A low absorption rate suggests a seller’s market, indicating high demand and limited supply. Conversely, a high absorption rate signifies a buyer’s market, with more supply than demand. This formula can be applied to different geographical areas, price ranges, or even entire regions, providing valuable insights into real estate market dynamics.
Lawrence Yun, chief economist for the NAR, relies on absorption rate as a key indicator when analyzing real estate sales patterns nationwide.
When setting the asking price for your property, it’s advisable to have your Realtor perform these calculations. If there’s a limited housing supply, you might be able to set a higher asking price. Conversely, in a market flooded with available houses, a more conservative asking price is prudent.
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