October 2024 Months Supply of Inventory, why is it important to home buyers?

What is Months Supply of Inventory

The balance between supply and demand in a housing market is measured by the Months Supply of Inventory (MSI).The calculation of MSI determines how many months it would take for all the currently available homes to be sold if no new homes were added to the market.

How is MSI Calculated?

The current number of homes available is usually divided by the average number of pending sales over the past 12 months to calculate MSI. Seasonal changes are accounted for with the approach, providing a better prediction of future sales rather than just looking at past sales.

What is a Balanced Market?

MSI (Months Supply of Inventory) shows how many months it would take to sell all the homes currently for sale on the market. It indicates whether the market favors buyers or sellers.

Since a balanced market usually has 4 to 6 months of supply, if MSI is less than 4, more power is held by sellers. On the other hand, if MSI is more than 6, more power is held by buyers, and marketing strategies might need to be adjusted by real estate agents.

October 2024, in Fairfield County CT, our Months Supply of Inventory is 2.4

• MSI is 4 to 6, Balanced market
• MSI is less than 4, Sellers have more power
• MSI is more than 6, Buyers have more power

Why is the MSI important to Buyers?

Knowing the Months Supply of Inventory (MSI) is important for home buyers in a seller’s market because it helps them understand the level of competition and the urgency of making offers. Here’s why:

• Quick Sale: MSI indicates how quickly homes are selling. In a seller’s market, a low MSI (4 or lower) means homes are selling fast, so buyers need to act fast.
• Higher Pricing Market: A low MSI often leads to higher prices. Understanding this can help buyers anticipate the higher pricing trends and set realistic budgets to achieve home ownership.
• Manage Exceptions: Knowing the MSI helps buyers manage their market expectations. In a seller’s market, sellers have more power due to the low inventory. Knowing the MSI is helpful for preparing for stronger negotiation tactics from sellers.
• Prepare and Perform: Being prepared and performing quickly is key in a seller’s market. A faster-moving market is indicated by a low MSI (4 or under signifies a seller’s market). Therefore, quick decisions need to be made by buyers, with their pre-approvals and financials ready.
• Bidding Strategy: Understanding MSI helps buyers with their bidding strategy, like making stronger initial offers or being prepared for bidding wars.

Understanding the shift in Months Supply of Inventory allows the market to be navigated more effectively by both buyers and their real estate agents. Making informed decisions and strategizing the buying process accordingly will not only manage expectation but also lead to a desirable outcome… a new home. 

For more information on your local market, contact me directly.