What the Heck is “Months of Inventory” Anyway?

If you’ve been anywhere near the Portland housing market lately, you’ve no doubt heard that months of inventory is at an all time low.  It’s definitely true, but what on earth does that mean?  Months of inventory, or absorption rate, is a way to measure how quickly homes are selling in a given market.

Months of inventory takes all the homes that are currently on the market and divides that number by how many homes have sold that month.  That number will tell you if no new listings went on the market how long it would take to run out of homes for sale.

Months of Inventory 6/2014-8/2015 for Multnomah County

Months of Inventory 6/2014-8/2015 for Multnomah County

So, from this chart, we can see that months of inventory (MOI) for August was 1.6.  Even though that is going up from the rest of summer, it is still incredibly low.  3-6 MOI is considered a balanced market, which means there is no real advantage for buyers or sellers.  More than 6 MOI is considered a buyers’ market.  In this situation, there are a lot of homes available and so buyers have the advantage of taking their time to make a decision.  A buyers’ market will sometimes result in lower prices for homes in order to stay competitive.  Less than 3 months of inventory is considered a sellers’ market, which is where Portland is at now.  Sellers who list their homes now may be able to get into a multiple offer situation which could potentially drive up prices.

This information is important whether you are buying or selling.  If you are currently looking for a home in an area that is a sellers’ market, know that now is the time to act.  Make sure your financing is all in order (a pre-approval letter from your lender is a must for making a viable offer) and be ready to make an offer that day.  Indecision is the killer of dreams in a sellers’ market.  Hopefully you’ve already established your whys with your broker so when that house that works for you comes along, you’ll know it.  You’ll have to ask yourself (and anyone else helping out in the decision) how you would feel if that house went under contract tomorrow.  If it’s something you think you’d be okay with, by all means take the time you need to figure out your next step.  If you can’t stand the idea of someone else living in that house though, don’t take too long to act.

If you’re thinking about selling your home, know that this could be a great time.  Even in a sellers’ market, however, pricing is incredibly important.  While prices on the whole may be going up, it is important to talk to your agent about what a fair list price would be.  If it is priced right, you could find yourself in a multiple offer situation, where a bidding war might push the price up.    A home that is priced too high won’t get this opportunity, and may detract buyers, as some who might be inclined to up their budget in a bidding war, may not even see your home if it’s initially out of their price range.  For instance, if your home is valued at $390,000 but you think it will sell for $405,000, no one whose max budget is $400,000 will see your property in the search.

Regardless of which side of the transaction you’ll be on, knowing current market trends in your neighborhood will help ensure that you get your desired outcome.  Talk to a real estate agent in your area to find out what the market looks like.  You can also visit my website to sign up for Neighborhood News, a monthly newsletter that gives you a snapshot of current market trends for a particular zip code.  Even if you’re not currently looking to buy or sell, it’s a great tool to keep tabs on what’s going on in your neighborhood.  Just click on the link at the top of my homepage!

Posted on September 22, 2015 at 8:10 PM
Sianna Johnson | Category: Portland, Real Estate | Tagged , ,

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