Months of Inventory/Absorption Rate

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Let’s talk absorption rate, months of inventory, what these terms mean and why they’re very important to understand for every home buyer and seller.

Absorption rate is simply the rate at which homes are selling in an area. We quantify this in months of inventory.

 

For Example: Let’s say there are 100 homes for sales in your area this month and 25 homes have sold in a one month period:


We would divide the total number of listings by the number: 


100/25   =  4

 

This gives us a total of 4 months of inventory: meaning it would take 4 months, if no new listings come on the market, at the current rate of demand for the current supply of listings to be bought up and this is the absorption rate.


Typically, in our market, less than 2 months of inventory would indicate a sellers market between 3-4 months would indicate a balanced market and anything more than 4 months of inventory would indicate a buyers market. This is important as this simple calculation helps us gauge the liquidity of a local market, it is important use this data while we’re buying or selling. 

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