Every month it seems the local news is filled with reports about how the San Diego real estate market is doing. Most of the data given in the reports is fairly straightforward and easy to understand: average price, the number of days a home spends on the market, year over year change, etc. But there is one metric that can be a little bit tricky to fully grasp and in our opinion, it’s the one that you should care about the most. We’re talking about Months Supply of Inventory.
What Does Months Supply of Inventory Really Mean?
Months supply of inventory is essentially a measure of how long it will take for the current inventory of homes on the market to sell, assuming no new homes were listed and the pace of home sales remained the same. For example, if there are 1,000 homes on the market and 200 homes sell each month, there is a five months supply of homes. Calculating the months supply of inventory can tell you a lot about the health of the local market and whether buyers or sellers have the upper hand. Generally, a seller’s market will have less than six months of supply while a buyer’s market will have six months or more.
Why Does it Matter?
Too many homeowners (and Realtors for that matter) focus on the average sale price of homes in a given area and how long it takes a home to sell. But these metrics often don’t tell the whole story of how the market is doing, especially in San Diego where homes in the same geographic area can look drastically different from each other and command wildly different prices. At The Roby Company, we’re much more concerned with “like properties” – those properties that are similar in size, layout, location, and price.
That’s why months supply of inventory is such an important metric to look at. It simply tells you whether the market is favoring buyers or sellers and how much inventory is currently available. This metric can’t be skewed by the types of homes that are included in the data. It merely offers a glimpse at where the market is headed.
What Can Months Supply of Inventory Tell Us About the Current San Diego Housing Market?
In recent months, you’ve likely seen articles that spell doom and gloom for San Diego homeowners. With headlines trumpeting that “Home Sales Have Slumped!”, “Prices are Softening!”, and the “Market is Sluggish!”, it’s enough to make anyone afraid that another market crash may be looming on the horizon.
But here’s what those articles don’t tell you. After months of persistent low inventory conditions, we are finally getting more homes on the market. Which means we are trending towards a buyer’s market and may even be moving that way – eventually. Looking just at the supply of detached homes in San Diego County, we have a little less than three months worth of inventory on hand, which puts us firmly in seller’s market territory. And if you look at the graph below, this is well below where we were at the 2008 crash. So what we’re seeing in San Diego County isn’t so much signs pointing to a looming crash, but indicators that we are working towards a more balanced market which would see us hovering at around six months supply of inventory.
Would you like to know how the market is doing in your city or zip code? We’d love to run the numbers for you – just reach out to us and we’ll be happy to send you over a free market report plus an estimate of your home’s current value! Just click here to send us a message.
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