The absorption rate gives us insights on the turnover rate of homes on the market. This is a useful tool for buyers and sellers to gauge how the real estate market in the Iowa City area is trending.
Here’s how it’s calculated: The first step is to determine the number of homes sold in the past 12 months and how many are currently on the market. We then divide the number of homes sold by the number of active listings to establish just how long the turnover rate is for homes. In other words, how long it takes the market to “absorb” homes.
More than 6 months is considered a buyers market, less than 6 months a sellers market and anything around 6 months is considered a neutral or balanced market.
The data I’m using for this post was collected on March 24, 2010 from the Iowa City Area MLS and includes all categories of single family homes in Iowa City. If you’re a seller listing your home for sale in Iowa City, then I’d use data specific for your neighborhood and the number might be different. Logically, some neighborhoods have a faster turnover rate than others.
There were 875 homes sold in the last year there are currently 614 showing as active listings.
875/614 = 1.4 – That means the inventory of homes turned 1.4 times in the last 12 months.
Now we take the 12 months and divide it by 1.4 to come up with the absorption rate.
12/1.4 = 8.5 months = 255 days – The absorption rate for homes in Iowa City is 8.5 months or 255 days.
I think this is a valuable tool for home sellers as it gives insights on the market and how long it takes to sell homes. The data here show us that with an absorption rate of 8.5 months Iowa City is considered a buyers market and continues to hold opportunities for buyers.
Having said that, going back to my last paragraph, this varies by neighborhood. Lucrative neighborhoods, (for instance walking distance to UI Hospitals), have a much faster turnover rate and much lower absorption rate. That’s why this post is information only and should not be acted upon! Before you make any decisions you should talk with a Realtor.