Absorption rate is the rate at which homes sell in an area. The higher the absorption rate, the faster homes are selling. Absorption rate is calculated by taking the number of homes that sold in a month in and divide it by the total number of homes for sale at the end of the month. If an area contains homes in two different price ranges, you can calculate the absorption just for homes in your price range.
For example, if 6 homes sell in June for between $300,000 – $500,000 and 30 are still for sale at the end of the month, the absorption rate is 6/30 or 20%. If 1 home sells and 15 remain, the absorption rate is 1/15th or 6%. An absorption rate above 20% has traditionally been associated with a seller's market, in which homes are selling fast. Absorption rates below 15% are associated with a buyer's market, which means homes are selling relatively slowly.