It’s been generally accepted in real estate that a “balanced market” has about six months of inventory. In other words, the sales for that month equal one-sixth of the number of listed properties, so, all things being equal, it will take six months to clear that inventory. As Norada Real Estate Investments puts it,
“As a general rule, 5 to 6 months of inventory is considered to be a normal or balanced market. Over 6 months of inventory and we have a buyer’s market. If it is less than 5 months and we have a seller’s market.”
Even the National Association of Realtors states that “Historically, six months of supply is associated with moderate price appreciation.”
What’s immediately odd about this is that housing prices have fallen since last year despite what should be a seller’s market. In May 2023, prices were down 2.2% nationally from their peak in June 2022. At the same time, inventory was only half that of a “balanced market,” sitting at 3.0 months in May of 2023.
Indeed, just looking at the average days on market in Jackson County, Missouri (the largest county in the Kansas City metro area, where I invest), it becomes plainly obvious that inventory is quite low. It hasn’t taken over a month on average to get a property under contract since before the pandemic.
Nationwide, the trend isn’t much different. In May 2023, the median time on market for a listed property was just 43 days and hadn’t been over three months in many years.
Gauging This Market is Tough
Now admittedly, this is an odd market, and that may explain part of why prices are falling despite it being a “seller’s market,” given the amount of inventory available. Prices were rising at unheard-of levels prior to the rate hikes last year. Those rate hikes made it much more expensive to buy a home for anyone using debt, which thereby put downward pressure on prices. Yet, because…