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[Real Estate] How to Determine Market Demand Using Months of Inventory

Posted by Brian Lim

Sep 13, 2018 4:03:00 AM

Calculate Months Of Inventory

Also known as months of supply, Months of Inventory (MOI) measures supply and demand in a certain city, town, county, or individual property. Months of supply will estimate the time it takes for the total amount of homes on the market to sell under the current rates and without new inventory coming on the market. By determining the MOI, you can determine if your market favors buyers or sellers. You can use this information to help strategize your marketing plan of attack and positioning of your ads.

Market Determination: Buyers or Sellers? 

Steps:

  1. Search MLS criteria that matches a keyword such as elementary school, single family home, 2 stories, or etc in a certain city, county, town, etc.
  2. Search for Active Listings
  3. Search for Sold Listings in 30 Days
  4. Plug Active Listings and Sold Listings in 30 Days into the MOI formula: 
    • Active Listings/Sold Listings in Past 30 Days = MOI

Rule of Thumb:

  1. If Months of Inventory (MOI) is greater than 7:
    • There is excess supply
    • More inventory will lead to less offers
    • Declining value and prices
    • Indicates a buyer’s market
  2. If Months of Inventory is between 5 and 6:
    • There is a balance supply
    • Equal demand and supply will lead to balanced offers
    • Stable value and prices
    • Indicates a healthy market
  3. If Months of Inventory (MOI) is less than 4:
    • There is scarce supply
    • Less inventory will lead to more offers
    • Increasing value and prices
    • Indicates a seller’s market

Examples:

There are 200 active listings on the market and 120 sold in the past 30 days,

  • Active Listings/Sold Listings in Past 30 Days = MOI
  • 200/120 = 1.6 MOI
  • 1.6 Months of Inventory indicates a seller’s market

On the opposite side of the spectrum, if there are 200 active listings on the market and 20 sold listings in the past 30 days,

  • Active Listings/Sold Listings in Past 30 Days = MOI
  • 200/20 = 10 MOI
  • 10 Months of Inventory indicates a buyer’s market

Use MOI as a guide to determine trends in your market. Once the MOI is calculated, position your marketing strategies and Facebook ads to align with the market trends. You can also use MOI as an indicator for price setting.


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Topics: Real Estate Marketing Tips, blogs, Sellers, Buyers

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