Currently, Folsom and surrounding areas are experiencing a Seller’s Market with low inventory.
What does “Months of Inventory” Mean?
You’ve probably heard the term “months of inventory” when talking about the housing market, but what does it really mean? And how does it affect you as a buyer or seller? Let’s dive in and find out!
In simple terms, months of inventory refers to the amount of time it would take to sell all the homes on the market based on the current sales pace, assuming no new listings are added. It’s calculated by dividing the total number of homes for sale by the average monthly sales rate.
How does Inventory Affect the Type of Market?
A balanced housing market typically has around 4 to 6 months of inventory. This means there’s a healthy balance between buyers and sellers, creating a fair and competitive environment. For buyers, it means having a reasonable number of choices without an overwhelming surplus of homes. Sellers, on the other hand, can enjoy a decent pool of potential buyers without facing intense competition or extended listing periods.
On the flip side, when there’s less than 4 months of inventory, it’s considered a seller’s market. This situation arises when the supply of homes is limited, but the demand is high. In such cases, prices may rise, and homes sell more quickly. Buyers may find themselves in a more challenging position, with fewer options and less room for negotiation.
Conversely, a buyer’s market occurs when there are more than 6 months of inventory. This means the supply of homes exceeds the demand, potentially leading to slower sales and more negotiable prices. Buyers can take a little more time, explore more choices, and perhaps have greater bargaining power.
How Does Low-Inventory Market Affect Buyers?
For buyers, a low-inventory market can present some challenges. With rising interest rates, there’s concern that monthly payments may not stretch far enough to purchase their dream home. Finding a suitable home can become a lengthy process, involving months of searching, numerous showings, and rejected offers.
Sellers, though benefiting from a seller’s market, face their own set of difficulties. While they may sell their home faster and at a good price, the real challenge arises when they need to find a new home that meets all their needs within a specific timeframe while dealing with higher interest rates.
Experienced real estate investors, on the other hand, can leverage a low-inventory market to their advantage. It’s an opportune time to sell underperforming investment properties, capitalize on rising property prices, recover costs, and potentially make a profit sooner than expected.
The Takeaway
Housing inventory plays a crucial role in the dynamics of the market. Whether you’re a buyer, seller, or investor, understanding these impacts can help you navigate the market and make informed decisions. Remember, market conditions can vary, so give me a call to discuss the market in your specific area.
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