What is Absorption Rate?
Absorption rate is the number of months it would take to sell all current inventory at the current pace of sales. Below 4 months = seller's market; 4-6 = balanced; above 6 = buyer's market.
Computed as: active inventory ÷ monthly sales pace. If a market has 1,200 active listings and is closing 300 sales per month, the absorption rate is 4 months — meaning at current pace, the existing inventory would be exhausted in 4 months.
Absorption rate is the single best leading indicator of where prices are heading. A rising absorption rate (rising inventory or falling sales pace, or both) precedes price softening by 3-6 months. A falling absorption rate precedes price strength.
For investors, absorption rate is the macro signal that should drive market-selection decisions. Markets crossing from balanced (5 months) into buyer territory (7+ months) are entering wholesale-friendly conditions; markets compressing from buyer to seller are exiting them.
Concepts that connect.
The Metro Deal Report Investor Score is a 0-100 composite ranking of US real estate metros, combining rent yield (40%), buyer-market discount via sale-to-list ratio (30%), motivated-seller proxies via percent of homes sold below list (20%), and median days-on-market (10%).
The Zillow Home Value Index (ZHVI) is a smoothed, seasonally-adjusted measure of typical home value for a given geography (zip, city, metro, state). It captures the value of a "typical" home in the 35th-65th percentile range — a more stable indicator than median sale price.
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