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“This is jane and today. I will be discussing na real estate statistic called absorption absorption rate just to outline what we will be doing nfor this session. I m to show you the formula for absorption rate. We ll use actual data from mls and actually calculate the absorption rate for several cities in the bay area and lastly.
I will show you how the calculation can be put in excel. And i ve created an excel worksheet for that ok. What is absorption rate. Simply put.
It is the rate at. Which current available listings non. The market are converted to sales given historical data. It is expressed in terms of number nof months.
So for example. An absorption rate of 2 months means that there is 2 months nworth of housing supply on the market. Said in another way this figure. Means that the ncurrent inventory is expected to run out in 2 months.
So absorption rate is used as an nindicator of how tight the housing supply is whether it s a buyers market or sellers nmarket. So the formula of absorption rate is very nsimple there are two measures that are needed to calculate absorption rate. The first is nthe number of active and pending listings on the market in short..
This is the number of unsold nlistings for a given market and this is divided by the 2nd measure. Which is the average number of homes sold per month. It s that simple let s use an actual example to illustrate nabsorption rate and let s do an actual calculation. So i have here some data that ni ve run on mls.
This is an actual snapshot of mls listings of single detached family nhomes that are for sale in fremont ca. In other words. This is the number of active nand pending listings. So we see that this number here.
259 is the number of listings. That are available on the market. Let s remember this number now let s go to historical data and here are homes. That were sold in fremont and i nran the data for the last 6 months.
So this number here. 533 represents. The number nof homes sold within the last 6 months. Now what we need is the average.
So what we need to do is divide 533 by 6 to get the average sales per. Month and we have the. Result which is 8883..
This will serve as our divisor in our calculation next. We re ready to calculate the absorption rate in fremont. So let s go back to our formula. Here.
So. The number of active and pending nlistings. We have that number which is 259 and this is divided by the average number of. Homes sold.
Per month and we have that at. 8883 and the result is 292. This is our absorption nrate so we can say that the housing supply of detached family homes in fremont nis tight with current inventory expected to run out in 292. Months now let s transcribe.
These calculations into excel. So i ve created a worksheet here that takes care of calculating the absorption rate as long as we input the necessary data so if we apply our fremont data. What s needed here is the number of homes for sale. Which is the number of active and npending listings in fremont.
Which is is 259. It s the number we had earlier let s put that there next is the number of homes sold. And we have the number 533 from our previous run..
Which is in the last 6 months and we can see that on the next line. Which is average number of homes sold per. Month it has been calculated for. Us which is.
8883 and the next line is the. Absorption rate which is. 292 which was calculated by dividing 259 by 8883. You can see that this matches.
Our figure earlier and if we click on the next tab. Which is chart. I ve created a bar chart to show the calculated absorption rate in. Fremont which is 292.
Ok. Let me just show you one more example and this time. We ll use the housing data nfor. The city of hayward.
So in hayward. The number of homes for sale as of may 6. 2015..
Is 257 and the number of homes sold. Within the last 6 months is 418. So we have those two numbers. And so let s go back to our worksheet and input.
These numbers so for hayward. The number of homes for sale is 257. So let s put that there and the number of homes. Sold is 418 and the months stay at 6.
Months and we see the average calculated is. 6967 and the absorption rate is. 369 and let s see the chart. Here so that has adjusted to 369.
And there you go. ” ..
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