Bob Melvey

Managing BrokerWindermere Real Estate

Using Absorption Rates

Analyzing The Real Estate Market

The graph below shows the absorption rate for single-family and condominum homes in King, Pierce and Snohomish Counties over the past 13 years. Click on the links to the left to see absorption rates for Seattle neighborhoods. For information about what an absorption rate is and what its strengths and weaknesses are, read the text beneath the graph.

The best tool for analyzing the market is the absorption rate. An absorption rate is the percentage of the inventory sold in a given period of time. It is a valuable (but at times imprecise) tool for determining if the market is a buyer's or a seller's market. Percentages above 40% indicate a market favorable to sellers. Percentages below 20% indicate a market favorable to buyers. Anything in between is usually a balanced market. However, I have noticed that prices can rise or fall when the absorption rate is well within the balanced range. This happens when the general consensus among buyers is that a major shift in the market is beginning to take place. Buyers will anticipate what they think will happen in the near future and act accordingly.

It is possible to have absorption rates in excess of 100%, which can be confusing. For example, if there are 100 homes on the market and 60 of them sell with none coming on the market to replace them, there will be only 40 homes available at the end of the month. The absorption rate in this example would be 150%.

If the number of properties available in the area sampled is too small, the absorption rate can appear very erratic. This is because a small change in the the inventory or number of sales can create a high-percentage difference in the percent of inventory sold. (See Seattle-Southeast Condominiums for a good example of this.)

Keep in mind when viewing the graphs that a decrease in the absorption rate does not mean that prices are falling. It may just mean that prices are not rising as fast. However, if absorption rates are approximately 20% or lower, it is possible that depreciation will occur.

The statistics here and on the following pages were not compiled or published by NWMLS. Bob Melvey compiled the data and created the charts using monthly reports produced by NWMLS.