In real estate, supply and demand is represented as the current month’s supply of homes for sale (the number of homes for sale divided by the number of homes sold in the previous month).
Most real estate professionals know, or at least have a good idea of, the month’s supply of inventory in their market because of its affect on pricing moving forward.
While there is no steadfast rule that will apply to pricing in every category of housing, here is a great guideline by which to go:
1-4 months’ supply creates a sellers’ market where there are not enough homes to satisfy buyer demand. Appreciation is guaranteed.
5-6 months’ supply creates a balanced market. Historically home values appreciate at a rate a little greater than inflation.
7-8 months’ supply creates a buyers’ market where the number of homes for sale exceeds the demand. Depreciation follows.
Real estate professionals should be prepared to discuss home values with either a seller or buyer, and be prepared to show what the supply of, and demand for, homes is in the same category of home they are thinking of selling or buying.
Sean S. Williams
Licensed Broker, Realtor®, ABR®, e-Pro®
1st Time Buyer & Relocation Specialist
of Louisville, Kentucky
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