Personal Finance Word of the Day: Absorption Rate

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Absorption rate is the rate at which available homes are sold in a specific real estate market during a given time period.

You can calculate absorption rate by dividing the total number of available homes by the average number of sales each month. The final result will show how many months it will take to deplete the market’s housing supply.

If the absorption rate is high, this could be a sign that the supply of available homes will reduce quickly. Consequently, this gives homeowners a greater chance of selling their property in less time.

Note that absorption rate calculations do not factor in new homes that enter the market. Calculating absorption rate can be helpful because it often lets developers know when it is a good time to start building homes.

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