How Many Months of Inventory?

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months of inventoryMonths of inventory. It’s a phrase that real estate agents are all too familiar with, but chances are that your clients have no clue what it means. Teaching your buyers and sellers the meaning of this common bit of real estate jargon can work to your advantage. If your timing is right, discussing how many months of inventory are currently on the market can even help you secure a listing or encourage your sellers to make an offer.

What exactly does it mean when real estate experts talk about months of inventory?

Months of inventory reflects an estimate of the amount of time it would take to sell all of the current listings in a given area if no new listings became available.

How do months of inventory impact real estate clients?

Months of inventory are often referenced when determining whether it’s a seller’s market or a buyer’s market:

  • If there are 0-4 months of inventory, meaning that all current listings can expect to be sold within 4 months, it is considered a seller’s market because houses are selling very quickly. In a seller’s market, sellers have the advantage because demand for property exceeds supply.
  • If there are 5-8 months of inventory, it is considered a balanced market. Current listings aren’t selling like hotcakes, but they’re not staying on the market too long either.
  • If there are 9 or more months of inventory, it is considered a buyer’s market because houses are selling slowly. In a buyer’s market, buyers have more negotiating power than sellers do because the supply of listings exceeds the current demand for housing.

These timelines are approximate, but it is generally accepted than fewer than 6 months of inventory reflects good conditions for sellers whereas greater than 6 months of inventory represents optimum conditions for buyers.

What variables can be included when calculating months of inventory?

Inventory can be calculated in different price ranges. You may even notice that homes in the same area are experiencing very different markets depending on their list price.

For example, homes in the $200,000 – $400,000 range may show 2 months of inventory, whereas homes in the $500,000 – $700,000 range may show 9 months of inventory. This means that lower priced homes in the selected region are enjoying a seller’s market, perhaps because the area is seeing an influx of young families or investors.

Conversely, the higher priced listings in this example are in the midst of a buyer’s market, meaning there are less buyers looking for homes in this price range at the current time.

What should a real estate agent tell sellers?

If a seller chooses to list their property during a seller’s market, s/he might encounter multiple offer situations. Additionally, a little curb appeal can go along way toward inspiring bidding wars and driving prices up. The best house in a tight market is a good position to be in.

If a seller chooses to list their property during a buyer’s market, they need to know that the average house isn’t going to sell overnight. The real estate agent will work hard to market the property, but the owner should be prepared to make a similar effort to make the house as attractive as possible. Now is the time to discuss competitive pricing, home staging and little paint and spackle.

What should a real estate agent tell buyers?

A buyer searching for a home during a buyer’s market will be faced with a potentially overwhelming number of options. Help buyers focus by identifying their priorities. Lot size, neighborhood, number of rooms… what is most important? Help buyers strategize and negotiate to get the best house for the best price.

Buyers searching for a home during a seller’s market should be properly prepared for competition. Let buyers know that if they find a house that fits their needs, there’s no time to waste. They should be ready to act quickly to submit a good offer, that includes having their ready money accessible and being pre-approved for a mortgage.

Do you discuss months of inventory with your clients, whether the market appears to be in their favor or not?

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