- calendar_month September 21, 2022
- folder Absorption Rate
Numbers don’t lie. We wish we could say the same for headlines. In our quest for transparency, we’re going to be bringing you monthly updates on the health of the real estate market with our new series Absorption Rate Analysis. We hear a lot about “fewer homes hitting the market”, but this hasn’t been our personal experience. We still see a very healthy market in the neighborhoods we service. And though we’ve been telling you this for months, we’ll let the stats speak for themselves.
What is an Absorption Rate?
Speaking from the real estate context, an absorption rate offers a percentage illustrating the amount of homes sold over a set period of time. We can use this figure to gauge whether a market is tipped in favor of the buyer or the seller. For simplicity’s sake, we’re going to be reporting the absorption rate on a monthly basis. And how do we find that figure? The formula is basic enough. 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.
The Threshold for a Healthy Seller’s Market
According to Investopedia, a 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. In Granada Hills zip code 91344 there are 68 active homes for sale and 33 homes sold in August with an average 22 days on the market, at a medium selling price $962,000. That's an absorption rate of 48%. Anything over 20% means we are in a healthy market.
While the meaning behind absorption rates may be up for interpretation, they still serve as a valuable barometer for market conditions. Therefore, we’ll continue to bring you monthly updates on the absorption rates in the areas we service. For now, these numbers support that this market is truly what you make it.
