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Formula – Months of Property Inventory On the Market
I/S = M
I – Total inventory of properties available on current market
S – Average monthly sales
M – Months of property inventory on current market
The resulting number shows what period of time, in months, current levels of real estate supply will last in the current market demand. Assuming no more property listings get on the market.
In general, 6 to 8 months is considered an average performance level of a balanced market.
When the resulting figure is 3 months of less, it can be said that it’s indicative of a seller’s market. This is because sellers are finding it easy to sell off their property as demand is very high.
Buyers will know that should they fail to agree on a price with sellers, there will be buyers who would be able to very soon.
This factor makes buyers more willing to accept prices higher than what they initially planned.
Conversely, when it is 9 months or more, we can say that it is a buyer’s market.