Absorption Rate (Hint: nothing to do with diapers)

ABSORPTION RATE – the time it will take to sell through a given housing inventory.

Well, believe it or not, it’s easier than you might think to have those numbers. All you need to know is how many of a certain price or type of property sold in the last twelve months, and how many of that same price or type of property is currently on the market.

Here is how I calculated the absorption rate for the Nanaimo area based on November 2017 detached home Market Data (provided by VIREB):

Since  in the last 12 months there were 1,556 single family homes sold in Nanaimo YTD as of November 30. Currently, there are 265 active single family listings on the market. That means that the current inventory level turned over, or sold, four times in a year. (1556 / 265 = 5.9)

Now, divide 12 (the number of months in a year) by 5.9 (the inventory turnover rate) and you have 3.0 (the absorption rate) to put it into months. The absorption rate is 2.04 months. That means there is currently a 2.04 month inventory/supply of single family properties on the market in Nanaimo as of November 30, 2017. That is really, really low.

What does this tell us?

If market conditions do not change and if no new listings come on the market it will take just 2.04 months for the current inventory to sell at the current pace of the market. A balanced market’s absorption rate is typically between 5 – 7 months. This means Nanaimo continues to be solidly in the seller’s camp.

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