Absorption Rate
The rate at which available homes sell in a given market during a time period.
Definition
Absorption rate measures how quickly available homes are selling in a specific real estate market. It is calculated by dividing the number of homes sold in a period (usually one month) by the total number of homes currently available for sale.
A high absorption rate (above 20%) signals a seller's market, meaning demand is outpacing supply and prices are likely rising. A low absorption rate (below 15%) indicates a buyer's market with excess inventory and downward pressure on prices.
Real estate investors use absorption rate to time acquisitions and dispositions. Buying in a low-absorption market can yield better purchase prices, while selling in a high-absorption market maximizes exit value. Wholesalers and flippers track this metric closely to gauge how quickly they can move properties.
Related Terms
Market Value
The price a property would sell for in a competitive market between a willing buyer and seller.
Comparable Sales (Comps)
Recent sales of similar properties used to estimate the market value of a subject property.
Days on Market (DOM)
The number of days a property has been listed for sale before going under contract.