Inventory is a Local Story

Like any market, the housing market is based on the relationship between supply and demand. On the supply side, months of inventory, i.e. how many months the current inventory will take to sell out if no new inventory is added, is a key metric that tells us if the market is favoring buyers or sellers. There are a few ways to get to this number but usually when we see this metric it's derived from active listings divided by closed listings over a period of time to arrive at an average. This gives us a good general idea of what's happening through the backward looking lens of what has happened.

I've started using a slightly different ratio that i think gives a more forward looking picture and a snapshot of the current moment: today's active listings divided by today's pending listings. To make this metric even more helpful I take this "snapshot" in my homebuyer or seller's local market and specific criteria. (Keeping in mind that if it gets too specific and granular there's not enough data to form a solid conclusion.)

Analyzing exactly this for a client of mine looking for a move-in-ready detached home in a specific price range in Northern VA inside the beltway, I got a ratio of .475 from 48 active homes divided by 101 pending homes, or less than half of one month of inventory. Additionally these 101 homes went under contract with a median of 6 days on market. Clearly for this specific market it's very tight on the supply side and we'll need to have our track shoes on.