I never was much of a numbers person, but I am finding that some numbers are indispensable in the business of real estate. One such number is the Inventory Index (II), which gives you a quick view of how many months it will take to deplete the current housing inventory.
It's generally considered that much under 3 months is a seller's market, while much over 5 months means you are in a buyer's market.
EASY TO FIGURE
The II can be applied to a city, county, state, or even a neighborhood, if there are enough sales and listings to make the index meaningful. Define your area, then determine how many listings are currently available (include for sale only, not pending, contingent, etc.). I use only SFRs, condos, and PUDs, and do not include mobile homes, apartment buildings, etc., though you can calculate the II for these as well.
Then find the number of sales in the last month in the same area, and divide the number of available listings by the number of sales in the past month. The result is the II, or about how many months worth of houses remain to be sold.
Here are the figures for some of our local cities:
- San Luis Obispo: 6.5 months
- Arroyo Grande: 8.0 months
- Morro Bay: 7.7 months
- Atascadero: 5.1 months
- Paso Robles: 6.8 months
Despite the improvement in the local market, these figures show we are still very much in a down market for sellers.
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