How Many Months Supply Is a Buyers Market?
Decode real estate market conditions with the "months supply" metric. Learn how inventory levels define buyer, seller, or balanced markets.
Real estate markets are constantly shifting, and understanding their current state is important for both buyers and sellers. Months supply of inventory is a key metric for assessing market conditions.
Understanding Months Supply
Months supply of inventory represents the theoretical time it would take to sell all current homes on the market if no new homes were listed and sales continued at the current rate. It provides a snapshot of the housing market’s supply-demand balance.
The calculation for months supply is straightforward: divide the total number of active listings by the number of homes sold in a month. For example, if there are 300 homes for sale and 100 homes sold last month, the months supply would be 3.0. This calculation offers a clear picture of market liquidity and the availability of homes relative to buyer demand.
Months Supply and Market Types
Months supply of inventory directly influences whether a market favors buyers, sellers, or is in balance. These classifications are based on typical thresholds that reflect the interplay of supply and demand.
A buyers market is indicated by a months supply of 6 months or more. In such a market, abundant homes mean buyers have more choices and face less competition. This translates into increased negotiation leverage for buyers, potentially leading to stable or declining home prices. Sellers may experience longer selling times and need to adjust pricing.
Conversely, a sellers market occurs when the months supply is less than 6 months, often 3 months or less. Demand exceeds supply, leading to fewer choices for buyers and increased competition. Buyers may encounter bidding wars, and home prices tend to rise. For sellers, low months supply can mean faster sales, multiple offers, and greater negotiation power.
A balanced market usually falls within a range of approximately 5 to 7 months of supply, though some professionals cite 4 to 6 months. In a balanced market, the supply of homes and buyer demand are relatively even, creating a more stable environment. Neither buyers nor sellers hold a significant advantage, leading to more predictable prices and moderate selling times. This equilibrium fosters a consistent real estate environment where both parties can achieve their objectives without extreme pressure.
Finding and Using Local Market Data
Accessing months supply data for a specific local market is important for making informed real estate decisions. Market conditions can vary significantly even within a single metropolitan area, making localized data more relevant than national averages. Prospective buyers and sellers should seek out information specific to their desired neighborhoods or regions.
Consumers can often find this information through various reliable sources. Local real estate agents frequently provide market reports that include months supply figures, drawing data from their Multiple Listing Service (MLS). Online real estate portals often publish extensive market data, offering statistics for cities, counties, and even specific zip codes. Additionally, local real estate associations and boards may aggregate and release market statistics, providing valuable insights into regional trends.
Once obtained, this data can be interpreted in the context of personal real estate goals. For instance, if you are a buyer, a higher months supply might suggest more available properties and better opportunities for negotiation. If you are a seller, a lower months supply could indicate a favorable time to list, potentially resulting in a quicker sale and stronger offers. While months supply is a powerful indicator, it should be considered alongside other factors, such as interest rates and economic conditions, to form a comprehensive understanding of the market.