Months Supply of Inventory… What??????
It’s no secret that our popular NE Tacoma/Browns Point community has been experiencing an inventory shortage for several months. Basically, there simply aren’t enough active listings in our in-demand neighborhoods, such as NE Tacoma/Browns Point, to satisfy buyer demands.
Consequently, you’ll notice news reports and real estate publications refer to a ‘months supply of inventory’ with respect to the housing market. In a nutshell, this industry term means how long it would take for the homes currently available to sell at the market’s present pace.
How is a months supply of inventory calculated?
To determine the months supply of inventory for a given area, you divide the number of active listings on the market by the number of homes sold per month on average during the previous 12 months. For example, there are 42 active single family home listings in NE Tacoma/Browns Point as of this publication date*. In the last 12 months, 175 single family homes sold in the same area or 14.28 per month. That means there’s roughly a 2.3 months supply of inventory of single family homes in NE Tacoma/Browns Point at this time.
What does a months supply of inventory say about our market?
A lot! As you may have guessed, this figure is primarily used to gauge the competitiveness of a given real estate market. This metric is important for you as a South Sound home buyer or seller for several reasons discussed below.
First off, a ‘normal’, ‘healthy’ market usually has between 5 and 6 months supply of inventory. So, you and your agent can compare your market data to that standard as part of your buying or selling strategy. Sellers, your agent will probably consider this stat when pricing your home’s value. In a seller’s market, or a market with a low months supply of inventory, pricing a home at market value or even slightly under may result in multiple offers since there aren’t very many homes for sale to keep up with demand. In a buyer’s market, or a market with a higher months supply of inventory, your agent will keep this info in mind to come up with a realistic price that will attract buyers while still achieving your goals.
Buyers, ask your agent about the months supply of inventory in several communities of interest to you. Once you know how competitive each pocket neighborhood is at that moment, you can narrow your search to suit your budget. What you learn about each market also lets you know how quickly you should be prepared to write an offer on a property you like. In a seller’s market, i.e. one with less than 5 or 6 months of inventory, you’ll want to pounce on homes of interest immediately and consider submitting backup offers as well. If you’re lucky enough to face a buyer’s market, your agent may have additional room for negotiations.
Finally, we want you to be cautious when you read real estate headlines that may be a bit misleading. While it’s great to stay on top of national and even statewide housing trends, keep in mind that the conditions you’re reading about might not apply to your specific South Sound community. That’s why it’s best to consult with an agent in your neighborhood and maintain contact to always be up to date on your market.
Now that you’re armed with this new real estate knowledge, are you ready to discuss housing inventory with a South Sound expert? Get in touch to meet your LOCAL professional today!