Absorption rate is a calculation of how many ‘months worth of homes’ are currently for sale in a specific 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. Dauphin County currently (as of 2/21/2017) has an Absorption Rate of 3.8.
Dauphin Cty homes sold in last 6 months = 959 (160 per month)
Dauphin Cty current homes for sale = 617
617/160 = 3.8 months of inventory = Absorption Rate in Dauphin Cty
If we could stop any more listings from coming onto the market in Dauphin Cty, it would take 3.8 months to sell the current listings, given the current rate of purchases made by Buyers.
A balanced market is defined as 6 months worth of inventory. Higher than 6 months indicates a Buyer’s market and lower than 6 months indicates a Seller’s market.
It is interesting how the absorption rate can vary, based on different sets of criteria. For example, today in Lower Paxton Twp, using the criteria of all single family homes under 3000 sq ft, the absorption rate is 3.3 months. However, when the criteria is changed to be single family homes larger than 3000 sq ft the absorption rate is 6.6. This indicates that it will take much less time time sell a home that is under 3,000 sq ft in Lower Paxton Twp.
Using this absorption rate, and how it varies with changes in criteria, really helps us understand 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. The lower the number the more aggressive the seller can price their home. The higher the number the more important it is that the seller is prepared to be flexible on price, and have the home in the best condition.
This information can also benefit buyers, letting them know how much negotiating power they have. The lower the number the more flexible on price buyers will need to be. The higher the number the more negotiating power the buyer will have.
Today, the home inventory (number of homes for sale) in MANY areas of Central PA is critically low. Realtors have buyers, but nothing new to sell them. Would you like to know what the absorption rate is in your area? Just shoot me an email, or text, or call, and I can easily and quickly let you know how fast you can expect to sell your home today.