WHAT IS THIS? This is the Unsold Inventory Index for specific price ranges, and is for single family homes on less than one acre. It is calculated by dividing the number of "Active" listings on the MLS by the number of reported sales in the previous 30 days.
Source: MLS (Multiple Listing Service)
Our Opinion of what it meansMarch 2004: The Index for homes on lots of less than an acre has decreased, and is very low. For houses priced under $600,000, the Index is about one month. For properties priced between $600,000 and $700,000, the Index is about two months. These conditions of very low supply can cause prices to increase.
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 houses 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 more than an 8 month supply, prices decrease. The further away from normal the index is, the faster the price changes. For example, a 10 month inventory could show that values are slowly decreasing, while a 14 month inventory could show that values are decreasing more quickly.
Likewise, when the inventory index is less than 6 months, prices increase. Again, the further away the index is from normal, the faster the price changes.