Absorption Rates – What Are They and Why Should You Care?

Let’s start with the definition of absorption rate: The absorption rate is the number of months it would take to sell the homes currently listed for sale in a specific area. While the calculation is actually quite simple, the meaning to you as a consumer is important.   Let’s take a look at the numbers:

San Diego County

     As of this article (October 16, 2018) there are 8,233 residential properties actively listed for sale.  In the first nine months of the year (January 1 – September 30, 2018) there were 27,401 residential properties sold. That is an average of 3,044.56 per month.

27,401 / 9 = 3,044.56 (average sales per month)

     Take the total number of active listings and divide that number by the average sales per month.

8,233 / 3,044.56 = 2.7 (number of months to sell current inventory)

Doing the math we find that there is 2.7 months of inventory on the market. In theory, if no other homes are brought on the market, that is how long it would take the current inventory to be sold (or absorbed).

The “Kicker”

     As you have probably guessed, this number will change dramatically in different parts of the county. Let’s have a look.

Downtown San Diego

Active listings to date (residential): 357

Sold in 1^st 9 months: 675 (75 per month average)

357 / 75 = 4.76 (or nearly five months of inventory)

La Jolla

Active listings to date (residential): 315

Sold in 1^st 9 months: 602 (66.89 per month average)

315 / 66.89 = 4.71 (or nearly five months of inventory)

El Cajon

Active listings to date (residential): 367

Sold in 1^st 9 months: 1,151 (127.89 per month average)

1,151 / 127.89 = 2.87 (or less than three months of inventory)

As you can see, the inventory is moving more quickly in El Cajon. For real estate professionals, this information is important in helping us keep our buyers and our sellers informed about what is happening in the marketplace over time. By tracking absorption rates in three- or six-month increments we can see if the market is shifting, and in what direction.  We can also see where demand is higher or lower.

For specific information about your particular market area, contact me at 619-876-0247 or at arlis@welcometosandiego.com