Months of Inventory – understanding supply & demand
Thanks for checking out the inaugural edition of the Treefort.io blog – Your Vantage Point for Vancouver Real Estate. The goal of this e-monthly on the state of Vancouver real estate is to provide you with an unbiased, spin-free analysis of our often complex, often crazy, market.
My name is Marty Majerski and I will be your host. I have been a licensed Realtor since 2009, having entered the business right after the collapse of US housing. In that time, I have seen quite a few swings in the market. And what I’ve learned is that the housing market is a living, breathing organism in a city like Vancouver. It takes on a life of it’s own. Pandemic? What Pandemic? Sales at the Greater Vancouver Board are smashing benchmarks! WTF?!?
So I’m not going to sit here and make any predictions for you on a monthly basis. What I am going to attempt to do is give you as clear of a view as possible of what is actually going on in #VanRE. I hope to deliver on this goal by:
- showing you data that is clear and easy to understand, as well as track – giving you more of a high level view of the market, rather than being reliant on the always rosy press-release headlines.
- providing you with an honest, unbiased interpretation of what the market “feels” like from a boots-on-the-ground perspective of someone working in it every day. I believe a lot can be learned from experiences and anecdotes.
So in order for us to all be on the same page when it comes to the market stats that I will be discussing on a monthly basis, we need to do some house-keeping and review what Months of Inventory really means.
Months of Inventory, or MOI, is a simple measure of the balance in supply and demand. It’s a form of absorption rate that essentially tells us how frothy market conditions are. The basic premise of the stat is to show how long it would take to sell all active homes on the market if there was no new inventory coming on board.
Is it calculated by taking the total number of listings (supply) and dividing it by the total number of sales (demand) in a particular month. This equals Months of Inventory.
And the cool thing about knowing what this magic number means is that it is an indicator of which direction prices are being pushed or pulled. Here’s how it breaks down:
Anything less than (<) 4 MOI = a sellers market – this means prices are being pushed up as there is not enough supply to meet demand. On the ground, it feels like lots of sales are happening. When calling listing agents you often hear the response “Accepted offer, subject removal ……”
Anything between 4-6 MOI = a balanced market – this means prices are generally moving with inflation or showing modest increases. On the ground, sales are generally steady. Listings don’t necessarily sell on the first weekend, but good properties still tend to move quickly.
Anything more than (>) 6 MOI = a buyers market – this means that there is downward pressure on prices as supply outweighs demand. This is where it’s fun to go house shopping. The buyer is in control and that’s a good place to be when purchasing what is likely to be the biggest asset in your life.
So as you read the analysis in my next few editions, keep those splits in mind:
< 4 = sellers market
4-6 = balanced market
> 6 = buyers market
Thanks for reading and I look forward to serving the #VanRE community.