What is an Absorption Rate? 

An absorption rate offers a percentage illustrating the amount of homes sold over a set period of time. This figure is used to gauge whether a market is tipped in favor of the buyer or the seller. To calculate absorption rate, we divide the total number of homes sold (over a month for our purposes) by the total number of homes on the market. 

Buyers vs Sellers

20% absorption rate indicates a healthy seller’s market. In this kind of housing market, homes sell rapidly. An absorption rate below 15% indicates a buyer’s market in which homes often stay on the market for a lengthy amount of time. To simply put it, lower absorption rate indicates buyer's market and high absorption rate indicated seller's market. 

Going Deeper into Context

Absorption rate affects the housing market in a variety of ways. With a high absorption rate, sellers know their property is likely to sell quickly due to high demand. High demand can also cause the home value to go up.

On the flip side, in markets with low absorption rates, homes can be on the market for months and buyers will have their pick of properties with little competition from other buyers.