You might have heard the term “months of inventory” as it pertains to the real estate market. What does this term mean?
In short, this term relates to the number of homes available for sale in a given month divided by the number of homes sold in that same month. For example, if there were 100 homes for sale and 10 sales, we would have 10 months of inventory – or, at the current supply and demand levels, it would take 10 months to sell the current inventory.
What does this number tell us?
Generally speaking, this number gives us a general overview of the relationship between supply and demand. However, there is more that should be examined- by price point, style of home, home size, neighborhood, and more.
What are the challenges with using this number as a unit of measure for supply and demand?
One of the biggest challenges with using months of inventory is that closed sales doesn’t represent current demand. Homes that closed last month may have gone under contract two weeks ago, two months ago, or even a year or more in the case of new construction. As a buyer or seller, you likely care about the current market-not what happened in the past.
What months of inventory numbers are good for buyers and which are good for sellers?
The National Association of REALTORS® indicates that six months of inventory usually equates to moderate price growth and generally speaking, a six months of inventory market is balanced, with no real advantage on either the buying or selling side. The lower the number, the more demand in relation to inventory which can mean more-rapid price increases.
How is our market?
Great question! Remember, this is very general and if you would like more-detailed information on your area, price point, or more, reach out!
We love tracking the market and would be happy to answer any questions you have!