The "Unsold Inventory Index" is the most important predictor of future price movement. It is the inventory of properties expressed in time, or the current relationship between supply and demand. For example, if there is a 6 - 8 month supply of houses on the market, prices are stable. If there is only a 4 month supply, prices usually increase. If there is a 10 month supply, prices usually decrease.
Source: MLS (Multiple Listing Service)
Our opinion of what it meansJanuary 2012: The Unsold Inventory Index in December was 7.2 months. One year ago, in December 2010, it was 7.6 months.
BACKGROUND: The Unsold Inventory Index is the most important statistic used to predict value increases or decreases. It is the current relationship of supply and demand for the housing market. The index is created by dividing the current supply (number of listings) by the current demand (number of sales). The result shows the time it would take to deplete the inventory of condos for sale at the current sales rate. It is expressed in months.
Years of statistical analysis have shown that a 6 - 8 month inventory index is normal- meaning the market is balanced, and home prices are not increasing or decreasing. When there is less than a 6 month supply, prices can increase. The further away from normal the index is, the faster the price changes occur.