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In Real Estate
Description
If you are a real estate buyer and have done considerable research on current
property market scenario, you might have come across the term 'absorption
rate'. This is a widely used term amongst real estate pundits who are charged
with the responsibility of analysing market trends and give a clear picture to real
estate investors. But how is it important for real estate buyers? Here is the note-
Absorption Rate is defined as the rate or the time that will be taken to sell the
existing stock of homes listed in the specific real estate market. Though it sounds
like simple mathematics, it holds great importance for real estate investors and
experts to assess how the market is performing. Absorption rate is a tool to predict
the future of real estate sales in a particular micro-market. It also governs the price
rise and fall in a given time.
How to calculate absorption rate?
In simple words, absorption rate can be calculated by the number of total houses
sold in the market in a previous period divided by the months taken to sell them.
Here is an example to understand the absorption rate in detail-
Suppose 30,000 homes were sold in past six months in a large urban area. So,
now divide 30,000 homes with six months to derive home sales per month. This
comes to 5,000 units per month. Now, consider there are 25,000 homes listed on
the market. Considering, that the last stock of 30,0000 homes took six months to
subside, divide 25,000 with 5,000. The absorption rate so achieved is 5. This
means that it would take 5 months to sell off 25,000 homes in the same micro
market.