Months of Inventory
My favorite real estate metric is “Months of Inventory” (also known as, “Months of Supply”). It’s perhaps the most useful indicator of how a local real estate market is doing, and where future prices may be heading.
What is “Months of Inventory” ?
“Months of Inventory” tells us how many months it would take for all current listings to sell, given the current sales pace, if no new inventory enters the market. It essentially measures supply relative to demand, and whether a market is a “Buyer’s” or “Seller’s” Market (see below).
How do you determine a “Seller’s Market” and “Buyer’s Market” ?
The industry consensus is …
0-6 months of inventory : → “Seller’s Market”
6-9 months of inventory : “Balanced market”
9+ months of inventory : → “Buyer’s Market”
In a Seller’s Market, inventory is low relative to demand, thus putting pressure on prices to rise. In this type of market, properties sell faster, multiple offer situations arise, and Sellers have the upper hand in terms of negotiability.
In a Buyer’s Market, inventory is high relative to demand, thus giving buyers more bargaining power. In a Buyer’s market, properties stay on the market longer, and prices tend to be more flexible.
How do you calculate Months of Inventory ?
Months of Inventory is calculated by dividing the total number of homes for sale by the number of homes sold per month. For example, if there are 30 active listings for sale in a given neighborhood, and 6 homes sold last month, then there is currently 5 months of inventory (30 divided by 6).
Tracking these crucial market statistics is at the core of our team philosophy, and is essential to providing professional service and added value. We use our expert market knowledge to guide, inform and protect our clients, ensuring that they make informed and successful decisions.
Curious to know how many Months of Inventory there are in your neighborhood?
Interested in Buying or Selling in Miami?
Feel free to call Alex Larmier at 786-301-5357, or email me at : Alex@AlexLarmierGroup.com