22 Mar Here’s a Quick Way to Calculate the Real Estate Absorption Rate…
Absorption rate is a measure of how many ‘months worth of homes’ are currently on the market. This is calculated by establishing how many purchases were made in the past 6 months within a given set of parameters. Next, we find how many homes are currently on the market with the same set of parameters. By dividing the number of current listings by the number of Buyers per month, we arrive at the absorption rate. Dakota County has the second lowest rate, 6.9 months. Absorption rates are like Golf Scores, the lower the better, if you are a home seller!
If we could stop any more listings from coming onto the market in that specific set of parameters, it would take 6.9 months to sell the listings in Dakota County, given the current rate of purchases made by Buyers.
I find it interesting how the absorption rate can vary, based on different sets of criteria. For example, today in Lakeville, using the criteria of all Two Story Style Homes in Lakeville MN, the absorption rate is 6.6 months. However, when the criteria is changed to be two Story Style Homes in Lakeville, MN with 3500+ finished square feet, the absorption rate is just 4.83.
This isn’t so surprising because it reflects the idea that buyers are purchasing the best values on the market and square footage is one measure of a home’s value.
The National Association defines a balanced market as 5 months worth of inventory! Higher than 5 months indicates a buyer’s market and lower than 5 months indicates a Seller’s market.
Using this absorption rate, and how it varies with changed in criteria, really helps illustrate where Buyers are Buying. Data showing which style of homes, neighborhood, or ages of homes buyers seem to prefer is priceless information for Sellers competing in this marketplace. We can calculate the current absorption rate for your home, just send an email with your Home’s City, Style, Year Built and Square Footage and we will run some absorption rate comparisons for you! We are always happy to help.
Anoka County…………..7.2 months
Carver County………….8.6 months
Dakota County………….6.9 months
Hennepin County………5.1 months
Ramsey County…………8.2 months
Scott County…………….7.9 months
Washington County……8.6 month
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