What is absorption rate? (No, it doesn’t have anything to do with toilet paper)
September 6th, 2007 - Categories: Inside the numbers
By: Charles Woodall
http://www.dothanhomesearch.com
I have been trying to find a better way to convey to our audience how the?Dothan real estate market has changed in the past 18-24 months. I have mentioned in several previous posts about how inventory has doubled during that time span, and what effect that has had on market time. I have found another way to present this information to you, our readers, and it has to do with something called absorption rate. Simply put, the absorption rate is the amount of time it would take to sell every home on the market today, if no more homes were listed. This figure is calculated by taking the number of homes on the market and dividing it by the average number of homes sold each month. Since the number of homes sold each month can vary significantly, we will use a three month average to calculate our absorption rate.
Let’s flash back to the last quarter of 2005. During this time period, there were 227 homes sold through the Dothan MLS, or about 76 per month. The number of active listings during these three months averaged around 440 homes. Divide 440 by 76, and you have 5.79 months of inventory, or a 5.79 months?absorption rate. Fast forward to the second quarter of 2007, and the rate only increases by about a month, to 6.78 months. Click on the chart below?for a graph showing the absorption rate over the past two years.
So what does this mean to you are a home buyer or seller in the Dothan market? For home sellers, it means means that homes are still selling in the Dothan area, and if you price yours competitively based on your competition, and put it on the market in pristine condition, there will be a buyer out there. For home buyers, it means you have a good selection of homes to choose from, and with continued low interest rates, the market doesn’t get much better.