Definition of Absorption rate:
The absorption rate in the real estate market is used to evaluate the rate at which available homes are sold in a specific market during a given time period. It is calculated by dividing the number of homes sold in the allotted time period by the total number of available homes. This equation can also be reversed to identify the amount of time it would take for the supply to be sold.
In absorption costing, the rate determined in advance for all cost centers for allocating fixed costs and variable costs (together or separately) to the output, in an accounting period. Also called recovery rate.
In the real estate market, the absorption rate provides insight into how quickly or slowly houses are selling. An absorption rate does not take into account additional homes that enter the market at various times since it only provides a figure based on the current available data. A high absorption rate may indicate that the supply of available homes will shrink rapidly, indicating that a homeowner will sell a piece of property in a shorter period of time. Traditionally, an absorption rate above 20% has signaled a seller's market in which homes are sold quickly. An absorption rate below 15% is an indicator of a buyer's market in which homes are not being sold as fast.
How to use Absorption rate in a sentence?
- Evaluating the rate at which available homes are sold in a specific market during a given time period is the purpose of the absorption rate.
- Traditionally, an absorption rate above 20% has signaled a seller's market and an absorption rate below 15% is an indicator of a buyer's market.
- The absorption rate is a term most commonly used in the real estate market.
Meaning of Absorption rate & Absorption rate Definition