Absorption Rate~Months Supply of Inventory Tools
June 13th, 2008 categories: Financial, Market Trends
How Do I Calculate The Absorption Rate and The Months Supply of Inventory?
The Absorption Rate has historically been used in New Construction planning and financing. Builders need to know how many homes can be absorbed into any given market before the first shovel goes in the ground. Lead time, financing and market shifts are unforgiving when you plan and build in a Sellers Market, but sell in a Buyers Market, such as we have now. However unscientific, a savvy Realtor can almost predict a market downturn or recovery by watching the incentive giveaways. How do we define a Buyers Market? It’s generally considered to be anything over about six months of inventory.
Absorption Rate and Months Supply of Inventory can help Sellers and Buyers understand the market. A Realtor who doesn’t use these indicators is like a violinist without a bow or a mechanic without a socket wrench ~ you might not hear the music or know how to fix it when the market shifts. These simple calculations can produce some elegant results: Read the rest of this entry »
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