Absorption Rate in real estate is always talked about as one of the key indicators of how a real estate market is doing, and whether it is a buyer’s market or sellers market. But what many people don’t know is that along with knowing what type of market you are currently in, Absorption rate can tell a trained eye what the market will look like in the future.

Home prices don’t go up or down overnight, but over a much longer period, sometimes years…

In real estate, trends take a while to come to fruition. Home prices don’t go up or down overnight, but over a much longer period, sometimes years. In some cases, the current statistics don’t even show the real picture, because they are a residual of earlier purchases. Take for example the new condo market in Toronto. While prices were still going up and people where lining up to buy pre construction condos, the absorption rate of the current inventory began to grow and if you were looking at the absorption rate, you would have seen this before the news media jumped all over it. On the flip side, despite the doom and gloom predictions by our media about the real estate market in Mississauga and other areas of Toronto, if you look at semi detached homes in Mississauga, the absorption rate for October 2012 as reported in the Toronto Real Estate Board’s Market Watch was only 1.7 months of inventory- which represents a strong sellers market.

Behind what you hear about in the media, there is an actual calculation to determining a sellers, buyers or balanced market. Filter through media stories and look for local experts to tell you what is going on. If you are thinking of buying or selling in the near future, there are different approaches you can take, depending on what market you are in. In the end, this one fact will not determine when is the best time for you to buy or sell, but it valuable information for determining the proper strategy for moving up the property ladder.

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