Understanding the Real Estate Market with 5 Key Metrics
When it comes to understanding the real estate market, there are several important metrics that both buyers and sellers should pay attention to. These metrics provide valuable insights into the current state of the market and can help guide decision-making.
In this article, we will explore the correlation between months supply of inventory, the 12-month change in months of inventory, median days homes are on the market, list to sold price percentage, and median sold price.
Months Supply of Inventory
The months supply of inventory (MSI) indicates the number of months it would take to sell the existing inventory of homes on the market, given the current sales pace. A lower number suggests a seller's market, where demand outpaces supply, leading to potentially higher prices.
12-Month Change in Months of Inventory
The 12-month change in months of inventory shows how the supply of homes on the market has changed over the past year. A significant increase in MSI suggests that the supply of homes has grown considerably, which could lead to a more balanced market.
Median Days Homes Are on the Market
The median days homes are on the market (DOM) represents the average time it takes for a home to sell. A lower DOM indicates a faster-moving market, where homes are in high demand and sell quickly. On the other hand, a higher DOM may indicate a slower market, where homes take longer to sell.
List to Sold Price Percentage
The list to sold price percentage (LS%) illustrates the percentage of the original listing price that a home sells for. A higher LS% suggests that homes are selling close to or even above their initial asking price. This indicates strong buyer demand and potential competition among buyers.
Median Sold Price
The median sold price represents the middle point of all the sold prices in the market. It is important to note that this is a median value, meaning that there are homes both above and below this price point. The median sold price gives an indication of the overall price range of homes in the market.
How Do These Metrics Relate to Each Other?
The months supply of inventory (MSI) and the 12-month change in months of inventory (MSI 12M) are closely related. A low MSI suggests a seller's market, while a high MSI suggests a buyer's market. The median days homes are on the market (DOM) and the list to sold price percentage (LS%) can also be used to gauge the state of the market. A low DOM and a high LS% suggest a seller's market, while a high DOM and a low LS% suggest a buyer's market.
What Do These Metrics Mean for Buyers and Sellers?
For buyers, a low MSI and a low DOM suggest that the market is competitive and that homes may sell quickly. This means that buyers may need to act quickly and be prepared to offer above the asking price in order to be successful.
For sellers, a low MSI and a low DOM suggest that the market is favorable for sellers. This means that sellers can expect to receive multiple offers and sell their homes quickly for a good price.
Conclusion
Understanding the real estate market can be complex, but by paying attention to key metrics, buyers and sellers can make informed decisions about their real estate transactions. The metrics discussed in this article can provide valuable insights into the current state of the market and help buyers and sellers make well-informed decisions.
Posted by Jordan Walker on
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