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April 27, 2017

What Does “Months Supply of Inventory” Really Mean?

By Mark Hite, President

Greater Chattanooga Association of REALTORS®

Each industry has its own set of acronyms and abbreviations and real estate is no exception. Today, let’s take a moment to explore the term “Months Supply of Inventory.”

The simplest way to explain this term is that at our current rate of home sales, if no new properties came on the market, we would be out of inventory in X # of months. This number is a constantly moving gauge of the health of a real estate market and one that all consumers need to understand.

The Greater Chattanooga region is currently standing at 3.6 Months of Supply, down 28 percent from March of 2016’s 5 Months of Supply. Looking back two years is even more dramatic – 6.3 Months of Supply in March 2015. And it was as far back as mid-2009, when our market peaked at 14 Months of Supply.

To interpret how this score relates to the average home buyer/seller in Chattanooga, consider the following. A balanced market, where there is considered to be an equal number of buyers and sellers traditionally has 5 to 7 months of supply. If a market exceeds this level then it is considered a “Buyer’s Market,” meaning there is excess supply and the buyer has the advantage. When the months of supply is lower than 5 months, it is considered a “Seller’s Market,” meaning home sellers have the advantage. Thus, we currently have a seller’s market in Greater Chattanooga.

What does this mean for potential home sellers? Typically in such a market, sellers can obtain top dollar and agree to limited concessions. Thus, buyers in a such a market should be prepared to pay a premium price with limited room for negotiations.

Reiterating these points, let’s look at March’s related market statistics when the average seller achieved 95.2 percent of their original list price. In 2015, this same figure was only 93.9 percent. Going back even further to January 2012 and a Buyer’s Market, sellers only received 89 percent of original list price and there was a generous 10.2 Months of Supply.

With the number of closed sales continuing to push ahead of last year and the number of new listings declining to the previous period, there is no indication that we will shift out of a Seller’s Market at any point in the near future.

If you are considering selling your house at any point in the next 2 years, now is the time to consult with an experienced member of the Greater Chattanooga Association of REALTORS®. With positive price appreciation and low interest rates, now is a great time to sell and lock in a low rate on your next mortgage.