Months Supply of Inventory and Why It's Important

When selling a home, it is important for one to understand the factors affecting how long it will take for that particular property to sell.  One of the factors that can affect the sale is whats called the month’s supply of inventory or MSI for short.  The MSI is a calculation that expresses how long it will take for all the homes (inventory) in a particular market to be sold.  This calculation is based on the amount of homes currently on the market and the rate at which how quickly these homes are selling.  For those of you mathematically inclined, the calculation is as follows:

The number of properties For Sale (FS) during the month (that is, the property was Active at least one day during the month) minus the number of properties that went Under Contract (UC) during the month minus the number of properties that Expired (X) during the month, divided by the number or properties that went Under Contract (UC) during the month:

MSI = (FS – UC – X) / UC

Example:

At the end of September in Bucks County their were 2,791 homes currently on the market with 252 homes under contract.  2,791/252 = 11.08

What this says is that it will take 11 months for the inventory in Bucks County to be sold.

In practical terms, the higher the MSI the more of a Buyer’s Market there is.  There are many more homes to choose from and home sellers will compete with each other, thus driving down prices.  If the MSI is lower, then there is less inventory on the market which gives home sellers the advantage.  For instance,  when the market was a Seller’s Market in 2005, the National Association of Realtors quoted that the MSI was about 4.6.  Compare that to the current Buyer’s Market MSI in Bucks County at 11.  Understanding the MSI is important because it helps to give real estate consumers a clear picture of what the market is doing and what they can expect when buying or selling a home.  By looking at the graph above, you can clearly see that today’s market is in fact a Buyer’s Market and consumers need to set their expectations accordingly.

-Thanks!

www.buckscountyrealestate.wordpress.com