Real estate absorption rates: simple formulas & examples

CBC SOUTHWEST PARTNERS “Monthly real estate absorption rate calculation” By request, we are reposting this as a definition… 

DEFINITION 

“Absorption Rate” is the rate specific property types are leased or sold in a given area.  

FORMULA 

The formula for monthly absorption is straight-forward:   

(1) # of listings with Realtors and FSBO today = CURRENT INVENTORY.  
(2) CURRENT INVENTORY SOLD / # sold last month = MONTHLY SALES RATE.  
(3) MONTHLY SALE RATE  /  CURRENT INVENTORY = MONTHS OF INVENTORY.   

EXAMPLE 

1,000 [CURRENT INVENTORY] / 100 [MONTHLY SALES RATE] = 10 [MONTHS OF INVENTORY].   

WEEKLY, ANNUAL & OTHER TERM RATES 

From the above, you can calculate any time-frame based on the above 

(1) Annual Absorption Rate Formula MONTHS OF INVENTORY / 12 (months in a year) = YEARS OF INVENTORY 

(2) Annual Absorption Rate Formula Example 10 [MONTHS OF INVENTORY] / 12 = .8333 = .83 = YEARS OF INVENTORY 

(3) Weekly Absorption Rate Formula YEARS OF INVENTORY * 52 (Weeks in a year) = WEEKS OF INVENTORY  

(4) Weekly Absorption Rate Example .83 YEARS OF INVENTORY * 52 = 43.33 WEEKS OF INVENTORY 

Need any help, any comments, or questions, just let me know. 

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