Absorption Rate- What’s That??
Think of a pool of buyers in a specific town as a sponge, and the number of properties available for sale as water. The absorption rate is an indicator that tells how long it will take for the ‘sponge’ to soak up the water, or really, how long it will take Real Estate Buyers to soak up the existing inventory, given the current rate of sales activity in a specific market or town. This is a theoretical number (in months). When the absorption rate is lower than 6 months, it is a Seller’s market (Sellers have the advantage, the market activity is strong, and prices are going up). Market absorption between 6 and 7 months is a neutral market, and when it is 8 or more months, it is a Buyer’s Market (Buyers have the advantage, the market activity is weak, and prices are dropping). Real Estate industry experts track this number over time to follow the trend of the market, to see if it is improving or getting weaker, as well as to read the relative strength of the market at any given time. Market Absorption can be calculated overall for a given town, or can also be narrowed to a nitch market (for example, it can be calculated for only condos or townhomes in a given town, or can be calculated in a specified market value range).
This indicator is calculated by dividing the number of homes on the market for sale in a specific location at a specific time, by the number of homes that went under contract in the 31 days prior. Again, the number calculated is only a theoretical gauge and does not represent how long it really should take to sell of the existing inventory of homes in a given town. When the number is decreasing over time, as in the current market, more homes are coming into the market than are being purchased, which results in driving values down.
Below are the current Absorption Rates of towns that I regularly track. To see the graphs of these rates tracked quarterly over several years, go to http://www.NJHomeTrends.com. If you would like to see a graph of any other towns in Morris, Essex, Union or Somerset Counties of New Jersey, don’t hesitate to email me at Judi@BestHomeResults.com.
Judi Paris, Broker/Sales Associate
Coldwell Banker Realtors- Summit, NJ
(O) 908-522-3631 (C) 973-902-HOME
Visit me at: www.BestHomeResults.com
Visit me on Twitter: @JudiParis
December Absorption Rates
| TOWN | #ACTIVE
LISTINGS |
#SALES | ABSORPTION
RATE |
| Randolph Township | 158 | 19 | 8 |
| Morris Township | 164 | 14 | 12 |
| Morristown | 119 | 12 | 10 |
| Madison Borough | 71 | 12 | 6 |
| Chatham Borough | 31 | 4 | 8 |
| Chatham Township | 86 | 9 | 10 |
| Summit City | 143 | 16 | 9 |
| Millburn Township | 112 | 14 | 8 |
on May 11, 2010 on 7:51 PM
[...] gone Under Contract (UC) are higher each month so far this year. Another market indicator, the Absorption Rate (AR), gives a read on the strength of the market, with a lower number indicating a stronger market [...]