What is Absorption Rate and why is it important?

Real estate absorption rate is the rate at which properties are sold in a given area. For example, there are currently 175 single-family homes for sale in and around Steamboat Spring (Downtown, Fish Creek, Mountain, Strawberry Park, & West Steamboat).

During December, 2010, 13 homes sold in these Steamboat Springs areas.  If you take the current inventory of 175 homes and divide that by how many homes closed in December (175/13), you get 13.4 months. That means if the current inventory stayed the same – meaning not other homes were put on the market, and the rate of closed sales remained the same, it would take 13.4 months to deplete or sell the existing homes. Or an absorption rate of 13.4.

A normal market would be considered between 5 – 6 months of inventory. If there is 1 – 4 months of inventory, it is considered a seller’s market. If there is more than 7 months of inventory, then it is considered a buyer’s market. Steamboat Springs is in a buyer’s market and has been for a few years. But inventories are reducing some so things are becoming healthier.

Why is it important to know the absorption rate?
If you are looking to sell your Steamboat Springs home the absorption rate will help you determine where you should price it for a quick sale. For example, say you are thinking about pricing your home at $450,000 and I calculated the absorption rate for homes priced between $450,000 – $500,000 was 14.3 months. But homes priced between $400,000 – $449,000 had an absorption rate of 10.2 months. If you were looking for a quick sale, you might price under $449,000. However, if you weren’t in a hurry and were prepared to wait, you might price over $450,000.

If you are looking to buy a Steamboat Springs home, knowing absorption rate may help you negotiate a better deal. Let’s say you are looking at two homes. One is in Fish Creek with an absorption rate of 10 months. While the other is located West of Steamboat with an absorption rate of 15.1 months. You may decide to purchase the home in West Steamboat because the seller may be more negotiable on his price because inventory is moving slower there. Conversely, lower absorption rates might designate a more desirable area. Thus, if these trends continue, a lower absorption rate area might increase in value faster.

Absorption rate is an important indicator of what is going on in your market and should not be overlooked. As in the examples above, the absorption rate can vary from city to city, neighborhood to neighborhood and even from one price range to another.
Here are some more absorption rates for all kind of properties in and around Steamboat Springs.

Single Family Homes / inventory = 175

• January 2011 = 15.9
• December 2010 = 13.4

Townhomes / inventory = 162
• December 2010 = 18.0
• November 2010 = 20.2

Condo / inventory = 378
• December 2010 = 22.3
• November 2010 = 23

Single Family home $1,000,000 plus = 73
• January 2011 = 18
• December 2010 = 24

—For more on this topic or questions regarding real estate in Steamboat Springs, feel free to call Charlie at 970-846-6435 or write me an email at: charlie@steamboatsmyhome.com. I will answer your post or email promptly with candid and informed answers. Click here to view all properties in Steamboat Springs in “real time” — This is one of the few real estate sites showing all foreclosed and all short sale listings in real time and updated every few minutes.