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Tip of the Month

Month’s Supply of Inventory – Explaining it to Consumers

Month’s Supply of Inventory (MSI) shows the time, in months, that it would take to “sell” the remaining inventory for the month in question. This metric is a one number summary of how market supply and demand are changing from month to month.

Please note: this data is from San Diego

To calculate this figure, take the number of properties that were For Sale on the Last Day of the month divided by the number that went Under Contract (Pending) during the month (the most contemporaneous measure of buyer activity). Calculated this way MSI becomes a “leading” indicator of sales activity.

Using the “same” month comparison over different years is a popular real estate yardstick because there is no seasonality involved in the measurement. Thus, any changes that have taken place are primarily due to market forces, for example, the collective behavior of all consumers participating in the market.

Adding the “linear” trend line helps you recognize whether the rate of sales activity is changing over time or not; and to what approximate degree. An upward sloping trend line indicates an increase in MSI (sales rate is slowing); a downward sloping trend line indicates a decrease in MSI (sales rate is increasing); and a flat trend line indicates that there has been very little change in MSI (the rate of sales).

Generally, anything that is below 3 months is considered a strong sellers’ market, 3-6 months is a balanced market, and above 6 months is a strong buyers’ market. What is your market inventory doing?

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