Absorption rates describe the relationship between housing supply and demand in a given area. It is calculated by dividing the number of homes currently on the market by the rate of home sales over a set time period, such as 6 months. An absorption rate of 6 months indicates a balanced market, less than 6 months is a seller's market with high demand, and more than 6 months is a buyer's market with low demand. Absorption rates can help assess housing market trends over time and between different areas.