Definition of Market Absorption Rate
- Definition of Market Absorption Rate
Expressed as a percentage, the Market Absorption Rate (MAR) is calculated by taking the total number of sales at the end of a given time period (in this case, a calendar month) and dividing it by the total number of active listings available during the same time period.
The higher the ratio, the more demand for the property and the more opportunity a seller will have to attract a higher price for their home for sale.
A lower ratio indicates slower sales and the potential for falling house prices.
A balanced market is when the supply of housing meets the demand from potential buyers.
Why is this term important?
The absorption rate is the rate at which available homes are sold in a specific real estate market during a given time period. It is calculated by dividing the average number of sales per month by the total number of available homes. The absorption rate helps identify the type of market a specific real estate market is currently in, which helps buyers, sellers and real estate professionals assess demand and supply. Typically, in a balanced market, sellers usually accept reasonable, close-to-list-price offers; homes typically stay on the market for close to the average number of days and prices remain fairly stable within the region.
Examples of term
Expressed as a percentage, the Market Absorption Rate, also known as the sales-to-listings ratio, is calculated by taking the total number of sales at the end of a given time period (in this case, a calendar month) and dividing it by the total number of active listings available during the same time period. Using Toronto’s numbers at the start of September as an example:
869 sales / 2,139 active listings = 40.63%
Each market determines where a balanced market lies.
For instance, in Toronto, the Toronto Real Estate Board states that a ratio between 35% and 55% indicates a balanced market. Ratios above 55% indicate a seller’s market, while ratios below 35% indicate a buyer’s market. In British Columbia, the Real Estate Board of Greater Vancouver and the Fraser Valley Real Estate Board states that a ratio between 0% and 11% is a buyer’s market; a ratio between 12% and 19% is a balanced market; any ratio over 20% is a seller’s market.