Here's what housing inventory & months' supply means and how it affects home pricing

House for Sale
Posted at 10:35 AM, May 04, 2021
and last updated 2021-05-04 10:35:46-04

(WXYZ) — The housing market is booming right now and it's a seller's market across metro Detroit and the country.

Related: Low inventory, seller's market fueling bidding wars & increase in metro Detroit home prices

According to a RE/MAX of Southeastern Michigan housing report for March, home sales are up, home prices are up and the number of days on market is down significantly.

On top of that, the months' supply of inventory is at less than a month. A balanced housing market has six months supply of inventory, according to RE/MAX.

For those unsure, the monthly supply of inventory is the total number of homes listed for sale at the end of the month – current inventory – divided by the number of contracts signed during the month.

According to the National Association of Realtors, homes are counted as inventory when a seller lists a property. When it goes under contract, it becomes a pending sale.

The NAR said that if inventory is rising, there is less pressure for home prices to increase.

Months' supply, according to the NAR, means the number of months it would take for the current inventory of homes to sell if no other homes were to hit the market, given the current inventory.

So, right now in metro Detroit, it would take less than a month for all available homes to sell if no other homes went up for sale.

When there is a lower supply, prices increase more rapidly.