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Definition of Absorption Rate

Absorption rate is the rate at which homes sell in a specific market over a given period of time, usually a month. The absorption rate is calculated by dividing the number of homes that sold over the given period of time by the total number of homes still for sale. If an area contains homes in two different price ranges, you can calculate the absorption rate just for homes in your price range. The higher the absorption rate, the faster homes are selling.

For example, if six homes sell in June for between $300,000 and $500,000, and 30 are still for sale at the end of the month, the absorption rate per month at the end of June is 6/30 or 20%. An absorption rate above 20% is generally associated with a seller’s market, meaning that homes are selling fast. An absorption rate below 15% is generally associated with a buyer’s market, meaning that homes are selling relatively slowly.

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