The term “absorption rate” generally refers to the rate at which properties sell in a given area. For example, if 1000 homes are currently listed for sale and, 280 sold last month, we would have a current absorption rate of 3.57 months based on the current data. Developers and builders have used this type of analysis for years before investing in creating new units in the marketplace. If there are 500 new homes a year selling in a given marketplace but only 300 currently under construction, they know they have an opportunity.
In the resale market, understanding the market and where it is headed is part of our job as real estate professionals. For example, let’s say we’ve done a market analysis and have determined that the property our clients wish to sell has a market value of $250,000 but the client wishes to sell it for $280,000. After a little homework, we can see that the market absorption rate for homes priced at $250,000 is 3 months whereas it is 7 months for homes priced at $280,000. It helps our Seller to understand that not only is (s)he wanting to over-price the house but also, slow down the sale. Clearly, our Buyer clients should also have this type of information available to them on properties they are buying.
There are always variations between areas and price ranges but here are a few examples of current absorption rates in our local market for resale properties:
Collingwood, Serviced Residential
Over-all in all prices 4.16 months
$100,000 – $200,000 5.16 months
$200,000 – $300,000 2.83 months
Town of The Blue Mountains, less than 1 acre
Over-all in all prices 7.93 months
$100,000 – $300,000 6.5 months
$300,000 – $500,000 9.8 months
Meaford
Over-all residential 4.7 months
Nottawa
Over-all residential 3.66 months
This information is gathered from MLS® data provided by the Georgian Triangle Real Estate Board. The analysis is done by taking a defined set of parameters and dividing the current available number of listings by the number of sales in the last month.
