Absorption Rates & Inventory Calculations for Real Estate
Monday Apr 23rd, 2018
Absorption Rate (AR) and Months-of-Inventory (MOI) are two very common statistics used to explain the general health of a real estate market. AR and MOI are calculated using the same inputs, the number of Active Listings and the Number of Sales. The number of sales is usually calculated as the number of sales in the previous month. For example, if there were 100 active listings in a market and 20 sales last month you would calculate MOI as 100/20 = 5 Months of Inventory. Conversely, the Absorption Rate is calculated as 20/100 = 5%.
These statistics are best used as moving indicators of the market rather than a stand-alone “snapshot” of the inventory.
Another example: In July there were 15 sales and 110 active listings, in August there were 17 sales and 105 active listings and in September there were 20 sales and 100 active listings.
July MOI=110/15=7.33 months AR=15/110=14%
August MOI=105/17=6.17 months AR=17/10=16%
September MOI=100/20=5 months AR=20/100=20%
So looking at these as moving indicators we see the Absorption Rate moving from 14% to 20% and Months of Inventory decreasing from 7.33 months to 5 months. In this its becoming more of a seller’s market as sales are increasing and inventory is decreasing.