When diving into the real estate market, understanding key metrics can provide valuable insights into the current state of the market. One such metric is the "months of supply" or "inventory." This figure is a critical indicator for both buyers and sellers, helping to identify whether the market is in favour of buyers, sellers, or is balanced. Let's explore how to calculate months of supply and what it means for you.
What is Months of Inventory or Supply?
Months of supply refers to the number of months it would take to sell all the current homes on the market if no new homes were listed. This metric gives a snapshot of the real estate market's health and can indicate whether the market is leaning towards buyers or sellers.
How to Calculate Months of Supply
Calculating the months of supply involves a simple formula:
Months of Supply = # of active listings / # of homes sold per month
Step-by-Step Calculation:
- Determine Active Listings: Find the total number of homes currently listed for sale.
- Calculate Monthly Sales: Determine the number of homes sold last month.
- Apply the Formula: Divide the number of active listings by the number of homes sold last month.
For example, if there are 600 active listings and 100 homes sold last month, the months of supply would be:
600/100 = 6 months
Interpreting Months of Supply
The months of supply figure can help indicate whether the market is a buyer's market, a seller's market, or balanced.
Buyer’s Market: More than 6 months of supply.
- Characteristics: High inventory levels give buyers more options, often leading to lower home prices and more negotiating power for buyers.
- Example: If months of supply is 7 or higher, there are many homes available compared to the number of buyers, which usually results in a downward pressure on prices.
Seller’s Market: Less than 4 months of supply.
- Characteristics: Low inventory levels mean fewer choices for buyers, often resulting in higher home prices and quicker sales.
- Example: If months of supply is 2 or lower, the demand outstrips supply, giving sellers the advantage to command higher prices.
Balanced Market: Between 4 to 6 months of supply.
- Characteristics: Supply and demand are relatively equal, leading to stable prices. Neither buyers nor sellers have a significant advantage
- Example: If months of supply is around 4 or 5, the market is considered balanced, meaning it's fair for both buyers and sellers.
Why is Months of Supply Important?
Understanding months of supply helps in setting realistic expectations whether you are buying or selling a home.
- For Sellers: Knowing whether it’s a seller’s market can help you price your home more aggressively and anticipate faster sales.
- For Buyers: In a buyer’s market, you can afford to be more selective and negotiate better deals.
- For Investors: Recognizing a balanced market helps in making informed decisions on property investments, knowing that the risk of significant price fluctuations is lower.
June 2024 in Central Okanagan Real Estate
Single Family Homes – 9 months of inventory = Buyer’s Market
Townhomes – 5 months of inventory = Balanced market
Apartments – 6 months of inventory = Balanced market
(Based on May’s Sold Stats)
Conclusion
Months of supply is a valuable metric that offers insights into the current state of the real estate market. By calculating this figure, you can better understand market conditions and make informed decisions whether you’re buying, selling, or investing in real estate. Keeping an eye on this metric can give you a significant advantage in navigating the ever-changing real estate landscape.
Feel free to reach out to the Selling Kelowna Real Estate Group at 778-718-4256 for more insights and personalized advice tailored to your real estate needs. Happy house hunting or selling!
