What Is Inventory of Homes for Sale and How Does It Affect Me?

I guess you are thinking “Inventory of Homes for Sale – I know what that is.” However, this real estate statistic is often misinterpreted simply because it seems easy to understand. In this article, I am going to state the official definition and explain what this statistic means to you and how you can avoid the hidden pit-falls that this statistic can create.

The official definition is the number of properties available for sale in active status at the end of a given month. Because this is one of the easiest to understand statistics in real estate people often use it and it alone to decide if the market is a buyer’s market or a seller’s market. The problem is that this statistic cannot be solely relied upon to indicate current market direction. To show this I will first describe what a buyer’s market or seller’s market are.

A buyer’s market occurs when there are too many Home For Sale in Murray Utah on the market for the number of buyers. Conversely, a seller’s market occurs when there are too few houses on the market for the number of buyers. Many think that if the Inventory of Homes for Sale goes up then it must be a buyer’s market and when it goes down it must be a seller’s market. Unfortunately, often times when Inventory of Homes for Sale goes up the number of prospective buyer’s goes up and when Inventory of Homes for Sale goes down the number of prospective buyer’s goes down. Because of this you can easily be tricked by this statistic into thinking that, it is a buyer’s or seller’s market when it is either neutral or the opposite. This can cause you to lose time, money, or the house you desperately want to buy or get rid of. Therefore, it would be wise to compare the number of active buyers to the number of active sales before you try to negotiate. So how do you figure out the number of active buyers at any one time?

There is no statistic showing how many people are trying to buy a home at any moment, but you could use the pending sales figures for the last few months to determine an average and the pattern of whether it is rising or falling to determine how many people would most likely buy a house in the current month.

There is another very large problem with this, though. In order to get the most accurate picture of the market, you would need to sort carefully through all of the short sales that are listed as active but actually have a current offer, so they should be included in pending. Then review the pending homes to see which ones have lost their buyer but have not placed their listing back into active status for some reason. Lastly, there are many buyers who place offers on several properties and even open escrow on many of them, before deciding which one they will close escrow on. So the actual number of buyers may be less than the pending sales figures indicate. I recommend using Months Supply of Inventory because it’s a much better indicator of the current market.

Leave a Reply

Your email address will not be published. Required fields are marked *