When you want to know how the market is, the “months of inventory” can help you answer that question we hear so often. However, it is not a “normal” figure like days on market or number of homes sold in a month. So what does it mean?
Months of Inventory measures how fast all the existing homes on the market right now would last. Essentially, if there were no more new listings, and they stayed selling at the rate they are, how long it would take until we would run out.
Example: Say there are 100 homes on the market at the end of the month. Based on the last 12 months of sales, we found that an average of 20 homes sold every month. So simply take 100 (# of homes we have) and divide that by 20 (the average # of homes that sell each month) 100/20= 5. We have 5 months of inventory.
Real estate is hyper-local, meaning that conditions vary not only from neighbourhood to neighbourhood but often down to the street level. Stats shouldn’t always be taken as facts, but generalities. The best way to determine how your home is performing is to get a free market analysis for your home.
Generally, a balanced market will lie somewhere between 4-6 months of inventory. Less than 4 suggests the market favours sellers and more than 6 suggests the market favours buyers.