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One Key Metric for Local Real Estate Market Health

August 19, 2011
by Scott Levitt ·  

How do you know if your market’s really recovering?

Home inventory icon Regardless of what your buyers and sellers hear in the national media, we all know that real estate markets are localized economic systems with complex factors influencing pricing, inventory, and trends.

So how do you know if your market has hit bottom, is still sliding down, or is showing signs of recovery? What key indicator should most influence your opinion?

According to the talented real estate mind of Bernice Ross, there’s one simple, precise indicator: How many months of inventory are on the market. Here’s Ross’ opinion on market health:

More than 8 months inventory = “rocky buyer’s market”
Between 7 – 8 months inventory = “bottom may be behind you”
Less than 6 months inventory = “good news, early signs of recovery”

To determine “months of inventory” use this equation:

Months of inventory = (total # of active listings)/(average # of monthly sales over the prior 12 months)

Do you use this metric? What other metrics do you use to judge the health of your market?

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