Why Inventory is The One Statistic to Know as a Home Buyer or Seller
Updated: Jul 26
One of the easiest ways to understand the direction of the real estate market is by looking at inventory numbers. Every month a number is reported on our website under the “Market Report” Tab on our home page. Understanding what it means will tell you what the current state of the supply and demand is in our local market. There are other statistics that we can use to understand how many homes are on the market, and how fast they moving from active to pending or sold, but these numbers have other factors affecting them as well. The ‘Inventory’ number is simpler in that it only reflects how many homes are for sale versus how many buyers are looking to buy them.
This number represents how long the current inventory (market supply) would last compared to the current demand. For example, if there is 1.0 month of inventory, then if no new homes came onto the market for sale, there would be no more homes to buy within one month.
It has long been decided by economists that six months (6.0) of inventory is the number that represents a balanced market. Therefore, more than 6.0 months of inventory means that there are more homes for sale than there are buyers to buy them. We call this a “Buyer’s Market” because the buyers generally have more power in negotiations. This is because the sellers are thankful that the buyers chose to make an offer on their home, rather than their neighbor’s home.
When there is less than 6.0 months of inventory that means there are fewer homes for sale than buyers wanting to buy them. This is referred to as a “Seller’s Market” because the sellers are receiving multiple offers on their home and the buyers are thankful their offer was picked by the home seller. We have been in a Seller’s Market for several years now with no end in sight.
In 2020, we saw inventory numbers go below 1.0 for the first time. This was considered the height of the buying frenzy with multiple offers, selling prices much higher than list prices, and homes selling within a few days, because of the demand from buyers. When interest rates rose last year, we saw inventory rise beyond 1.0. Even though the inventory number reached 1.4 (from 0.7 a few months earlier) and continued to climb each month after that landing at only 2.7 months of inventory, the change felt like more than 6.0. Many buyers were getting homes at or below list price as they would in a Buyer’s Market, yet 2.7 is very much below 6.0 and the market is still a Seller’s Market. This can be very confusing for buyers and seller alike.
To summarize, the months of inventory is currently at 1.9 (as of June 15th, 2023.) No matter what your co-workers or family members are saying about price decreases or homes sitting on the market, we are still seeing most homes receive multiple offers and over-list price offers within a weekend. We don’t expect this to change any time soon as the number of buyers entering the market generationally is only increasing. Home sellers have decided to refinance with the record low-interest rates available a few years ago, which has further strained the supply of homes. So if you are a homeowner looking to sell this year you should expect a strong market. If you are a buyer this year or next, you should expect to be competitive, and once your offer is accepted you will enjoy steady increases in appreciation and equity for your property. That is why we suggest you don’t wait to enter the market.
Contact us if you have more questions about buying or selling in today’s market or tomorrow’s and we’d be happy to walk you through the best options to make sure you are taking advantage of the current inventory numbers.
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