Months of Inventory can help answer the famous “How’s the market” question we so often hear. Trouble is, 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 is a measure of how fast all the existing homes on the market would last assuming a) no more listings are added, and b) the rate at which homes sell is a constant figure based on the average of the last 12 months of sales.
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. Remember, our assumption is that we are not adding any more homes to inventory in the coming months. So simply take the 100 homes we have, and divide it by 20 homes that sell each month on average. 100/20=5 months of inventory.
Here’s an example of a common graph you will find in our Market Data Center that deals with Months of Inventory.
It’s important to keep in mind that statistics are not really facts, they are more generalities. Looking at one graph on it’s own will not provide you a complete and whole picture of the market. At it’s core, real estate is hyper-local, meaning that conditions vary not only from neighborhood-to-neighborhood, but often times down to a street-by-street level. The best way to determine how your home is performing is to get a free market analysis for your home. You can get yours here.
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