04
Oct
Real Estate

What Does 'Absorption Rate' Mean?

Aaron Krausert
I
October 4, 2019

In order to read and understand real estate forecasts, it's important to understand a concept called absorption rate.

Simpy put, it outlines if there were no new listings coming on the market, how long would it take for all of the current real estate inventory to sell, or be 'absorbed' into the market, given the current rate of sales.

If there are less than seven months' worth of inventory, that makes for a seller's market. If there are more than 11 months' worth of inventory, that constitutes a buyer's market. Anything between those numbers means it's a balanced market.

The bottom left graph illustrates Kamloops' Absorption Rate. Grey area is a 'balance market'.

As you can see in the lower left graph above, in Kamloops (while not as strong as it was in 2016 and 2017) the region remains a seller's market, but is trending towards a balanced market. Year-to-date, we’ve experienced 11 per cent less sales volume compared to 2018. In contrast, Greater Vancouver has transitioned firmly to a buyer’s market and has seen approximately 50 percent less sales this year compared to the past few years.

Why has that happened?

There’s been a number of forces at play, one of which is the federal government’s economic plan to slow down the rate of Canadian household debt with the B20 mortgage stress test, which makes qualifying for a mortgage tighter.

Then, the provincial government implemented its foreign buyers, vacancy, and speculation taxes, which added to the slow down in the housing market here in BC.

Though, the great news for Kamloops is our economic diversity! Our region hosts both CP and CN rail lines, Highland Valley and New Gold mines, Thompson Rivers University (which is thriving), and an amazing four-season recreational climate with tourists enjoying the lakes in the summer and ski hills in the winter.

Many people choose Kamloops to purchase their home so they can live and play in an affordable market packed with family activities and the lack of big city stresses.

...

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