Absorption rate is a common statistic in Harrisonburg and Rockingham County real estate market reports.  Absorption rates describe how quickly or slowly homes are being sold in the market.  The higher the rate, the more aggressive a home seller needs to be to have their home noticed, because a higher rate means homes in that market are not selling as quickly.

Calculating 12-Month Absorption Rate

Absorption rates are calculated by choosing an amount of time, like 12 months, and seeing how many properties sold in that time in the market segment you are interested in exploring.  To get the 12-month absorption rate, divide the number of homes sold in a market segment in the past 12 months by 12 months.   Then, divide the number of properties currently for sale in the market segment (the inventory) by the previous result.  That’s the absorption rate.  A final result of 6 is considered a neutral market, a higher number (homes take longer to sell) is considered a buyers market and a lower number (homes are selling quickly) being a sellers market.

Studying Absorption Rates in the Harrisonburg/Rockingham Real Estate Market

The “real estate market” is in actuality many different markets, as the overall number of properties for sale can be broken down into almost endless subcategories.  Price ranges are a useful category to use when exploring a market, as they are a quick way to study differences in the market.  Townhomes and single family homes are also two useful categories of distinction.

Karl Waizecker of Kline May Realty recently studied 2010 real estate sales data from the Harrisonburg/Rockingham Associations and REALTORS MLS and calculated absorption rates at various price levels for townhomes and single family homes in Harrisonburg and Rockingham County.  His analysis included breaking down Harrisonburg and Rockingham County into the county’s geographic sections and Massanutten, but the figures here show only Harrisonburg and Rockingham County as a whole.

Figure 1 describes the 12-month absorption rate for the townhome market at various price levels.  The chart shows that lower priced townhomes are in more competitive market.  That makes some sense, since more people can afford lower priced townhomes and there is thus more supply relative to the demand compared with higher priced townhomes.  In fact, some of the lower price segments actually are in a sellers market – as are the highest priced townhomes!

Townhomes priced between $120,000 and $179,999 are selling the slowest of anything in the whole real estate market.  The big driver for this is how many townhomes in each category are for sale as of December 31, 2010: 51 townhomes for sale between $120,000-$139,999, 49 between $140,000-$159,999, and 35 between $160,000-$179,999.

Figure 2 shows the 12-month absorption rate for the single family home market at various price levels.  Again, at the lower priced levels, homes are selling at a quicker pace – but all the categories (except one) have an absorption rate higher than six, suggesting there is a buyers market at all price levels for single family homes.

Figure 1: 12-Month Absorption Rates for Harrisonburg and Rockingham County Townhomes on December 31, 2010 (Source: Harrisonburg Rockingham Association of REALTORS MLS)

Figure 2: 12-Month Absorption Rates for Harrisonburg and Rockingham County Single Family Homes on December 31, 2010 (Source: Harrisonburg Rockingham Association of REALTORS MLS)