If you're in the market to buy or sell a home, you've probably heard the term "months of inventory" thrown around. But what does it mean, and how does it affect you? Let's dive into the details and explore the impact of a low-inventory market.
In simple terms, “months of inventory” refers to the estimated time it would take to sell all the homes currently on the market, based on the current rate of sales and assuming no new listings are added. It's calculated by dividing the total number of homes for sale by the average monthly sales rate.
Months of Inventory
For a balanced housing market, experts typically consider 4 to 6 months of inventory to be ideal. This range indicates a healthy equilibrium between buyers and sellers. With this level of inventory, buyers have a reasonable number of options without facing an overwhelming surplus of homes. At the same time, sellers can expect a decent pool of potential buyers without enduring cutthroat competition or lengthy listing periods.
However, when inventory dips below 4 months, it's often referred to as a seller's market. In this scenario, the supply of homes is limited, leading to higher demand and the potential for rising prices. Buyers might face challenges, including increased competition, fewer choices, and even homes selling above the asking price.
Conversely, when inventory exceeds 6 months, it becomes a buyer's market. Supply surpasses demand, resulting in slower sales and more negotiable prices. Buyers may have more room to explore their options and negotiate favorable terms.
Currently, Walnut Creek and much of the East Bay are experiencing a Seller’s Market with low inventory. Let's take a closer look at how these dynamics impact different parties
A Seller's Market
Buyers: With rising interest rates, prospective homeowners may worry about stretching their monthly payments to afford their dream home. In a low-inventory market, they may face a lengthy search. Some buyers may need to compromise on size and features due to the limited availability of affordable homes. Homes can sell quickly, often above the asking price.
Sellers: Being in a seller's market can be rewarding, but it's not without its challenges. While homeowners may sell their homes faster and at good prices, finding a new home that meets their specific needs within their desired timeframe can be tricky, especially given rising interest rates.
Real Estate Investors: Experienced investors can benefit from a low-inventory market. They can sell investment properties that may not be performing as well and capitalize on rising property prices. It's an excellent time to recover costs and potentially make a profit sooner than anticipated.
A low-inventory market has a significant impact on both buyers and sellers. Understanding these dynamics can help you navigate the real estate landscape more effectively. Whether you're buying, selling, or investing, it's crucial to stay informed about local market conditions. Give me a call and I can walk you through the process. 925-200-2126