A metric that realtors use to assess market conditiion is "months of inventory". This metric is useful for assessing how strong or weak the market is. Months of inventory is the number of months it would take to sell the entire inventory of homes currently for sale assuming no more homes were added to the inventory. It is calculated using the number of sales in a month. So, for exmple, if 10 homes sell in a month, and there are 100 homes for sale, there is 10 months of inventory. In theory, when the months of inventory drops below 6, it is considered a seller's market. That is, there are not enough homes to satisfy buyers' needs, and prices generally go up. When the months of inventory is above 6, it is a buyers market. There are too many homes on the market for the number of buyers, and prices generally drop.

 

You can see from the graph below that we have been above 6 months of inventory for the past 24 months. However, notice that around May of 2007, we were close to 6 months of inventory, and in past months we have been around 7 months of inventory. This is roughly a neutral market meaning that there is no pressure for prices to go up, or to go down. Therefore, prices remain stable. This is supported by anecdotal information suggesting that home prices have stabilized.