Joe And Doug Williams

Reading the Tea Leaves with Months of Inventory

31 July 2020
Joe And Doug Williams

A hot topic in Toronto, Mississauga, Halton, and Hamilton real estate is a perceived lack of inventory. But how do you properly assess inventory in communities that are growing year over year in terms of housing stock, and also citizens? Comparing the number of new listings in July 2020, to the number of new listings in July 2010 is interesting in some sense, but it doesn’t reflect the market conditions that buyers and sellers are experiencing.  

One metric we use when discussing inventory - and the state of the market - is “months of inventory.”

Months of Inventory: “Active listings for a given period” divided by “Number of sales for a given period” 

Months of inventory gives us a sense of how fast the inventory of homes are being sold, and the level of supply relative to demand. It can be used as an indicator of whether we are in a sellers, balanced, or a buyers market. Traditionally - MOI of less than 4 is considered a sellers market, 4 & 5 MOI would indicate a balanced market, and over 6 is considered a buyers market. 

One source of available recent statistics shows - Toronto, Mississauga, Halton, and Hamilton as all showing a “months of inventory” between 1.5 and 2.8. The months of inventory for Burlington was 1.5 in June for example. This means that the inventory of homes would be entirely sold within 1.5 months if no new homes were added. 

This is a relatively low amount of supply. When supply is low relative to demand, buyers find themselves chasing after a limited number of attractive, well priced listings - and this leads to competition and rising prices. These are the conditions for a sellers market.

Navigating these conditions as a buyer can be challenging - but with smart & hard work - you can successfully secure the right home. As a seller - you still need to prepare, price, and market your home properly to take advantage of a “sellers market.”  We are happy to discuss either process with you. As always we thank you for your recommendations to friends and family.

Cheers,

Joe & Doug