As a real estate broker for many years now, I know we use our own “lingo.” Here is a great example of that. Every month, we talk about the absorption rates in the Albany, Oregon area. If I didn’t talk about it and help compile the numbers every month, I would not have a clue and possibly not a care about absorption rates. What are they, and how do they affect me as a home buyer or a home seller?
The real estate dictionary defines an absorption rate as the rate at which homes sell in a given area during a given time period. Absorption rates are calculated by dividing the number of sales in a given month by the number of available homes for sale. Another term you may hear that expresses this concept is inventory level. There is a level of inventory or supply of homes for sale in any given market at any given time.
If you’re reading the charts I have published here, it is important to know that I calculate this rate as a number of months of inventory. The column labeled “months” is the column in which you’ll see this number. For example, if you see that there are two months in the range of $300,000- $350,000 in Albany, you would expect that if no new homes were introduced to the market, and the same number of sales are occurring, it would take two months to absorb the supply.
What do the numbers mean for you? The lower the number, the stronger the market for home sellers. Adversely, the higher the number, the stronger the market for home buyers.
For the past several months, we have seen the lowest levels of homes on the market across the board in many years. Many people have never seen levels so low. In 2013, I recorded this video to help explain absorption rates. During that time, the market was shifting from a balanced market into more of a seller’s market. It has continued to become a stronger and stronger seller’s market since that time. When you see sales happening quickly, often with multiple offers, and quickly rising home prices, you can bet the absorption rates are very low.
Of course, there are many factors that will determine how quickly your home will sell or whether now is the right time for you to buy a home. Talk with your real estate broker/agent to help guide you through the process in a way that best suits your needs.