Calculating Absorption Rate is part of the market analysis that many appraisers will research. Absorption Rate is a crucial concept that is used in attempts to forecast home prices and sales activity.
How to calculate absorption rate:
- Gather sales (sold homes) over a period of time. Lets use 12 months (1 year).
- Divide the number of homes by the number of months in the interval.  This calculation will yield a per-month absorption rate.
- Finally, divide the rate into the number of current listings. This yields the months’ supply of homes in that given market.
Its widely used that six months is considered to be balanced. when the number of listings is approximately equal to the number of buyers. Anything over would go further into a buyers market and visa versa for below 6 months.
