Real Estate Expert in Essex, Morris and Union Counties in New Jersey

Q. What does Absorption Rate mean in the Real Estate Market?

A. It is a number that shows the rate at which the inventory of homes for sale are being sold.  We take the total number of homes on the market in a given area and divide that by the number of homes that sold in the most recent period (typically one month).  This provides us with an estimate of the number of months it would take to sell all of the housing inventory if no new inventory was added to the market.  The rule of thumb is that any number less than six months represents a seller's market and any number above six months represents a buyer's market.

I like to look at trends.  A sage on Wall Street said, "the trend is your friend".  A declining Absorption Rate indicates that inventory is decreasing as more homes are being sold than are coming onto the market. A rising Absorption Rate implies that there are more homes coming onto the market than there are buyers willing to buy at the market prices.  The trend in the Absorption rate is worthy of watching. 

Comparing one town to the next can also give you a picture of the relative strength of one market compared to the next.  However, it is not the absolute number that is important in this comparison but rather changes in the relationship.

I have changed the way I am reporting these numbers.  There is a lot of variability in the numbers of homes closing from one month to the next and some of this is the result of the number of business days in the moth.  In an effort to  correct this, I am adjusting each month by the number of days in the reporting period.  In order to better show trends, I have determined that showing a 4 week moving average will smooth data anomolies and better show the underlying trends.

I am no longer updating the data each week.  It is very time consuming and I am running out of space.  If  you send me a note, I will email the data to you for any town or county of interest for which I maintain records.