Months of supply tells you more than price ever will

If you track one housing number, track months of supply: active inventory divided by the monthly sales pace. It answers the only question that matters — how long it would take to sell everything currently listed at the current rate.

The rough bands

Under four months is generally a seller’s market. Four to six is balanced. Above six, buyers set terms. Conventions rather than laws, and they vary by metro, but they hold up better than most rules of thumb.

Why it beats price

Median price is distorted by mix. If a quarter’s sales skew toward larger homes, the median rises without a single house being worth more. That happens constantly and is almost never adjusted for.

Months of supply has no mix problem — it is a ratio of two counts.

It also moves first. Inventory builds while prices are still flat, because sellers anchor to last year’s comparables before they cut. By the time the median moves, supply has usually been signalling for two quarters.

Computing it yourself

Both inputs are published by most local realtor associations. Active listings at month end, divided by closed sales for that month. Do it for the specific price band you care about — a metro can be at three months under $500k and nine months above $1.5m at the same time.

The seasonal trap

Supply rises every autumn and falls every spring almost everywhere. Compare against the same month last year, not against last month.

General information, not personalised financial advice.

Reported at HousingWire and Realtor.com News; analysis ours.