bsorption Rate - IS the other half of the equation.
bsorption Rate is:
The rate at which homes will sell within a givenperiod of time.Absorption rate is what gives an Investor a clue, albeit a small clue asto the type of market he is working with.< 5 months absorption = Sellers Market5-7 months absorption = Neutral Market> 7 months absorption = Buyers Market
Calculating the Absorption Rate
To calculate the Absorption rate one needs several facts.
- The total number of houses for sale within adefined market area
Average Sales Per Month
Is what it says.
If the current Inventory of homes for sale in a particular market is 80homes and the average sales per month is 8, then the Months Of Inventory is 10.Unfortunately, The Inventory today cannot be precisely knownbecause of what is known as
is the number of homes that Banks have intheir respective Foreclosure Pipeline that either have not gone throughthe process to completion or which the bank has not released to themarket yet in an attempt Not to Flood the Market.
Remember that M
cannot be precisely determined because of the Shadow
could be determined, then:
88 houses in current inventory divided by 10 MOI = an
of 8.8 and based on the Criteria to determine thetype of Market we have, and Absorption Rate of 8.8 = Buyers Market.