The quick and direct answer to you question is 5 months of inventory represents a balanced market. For years, inventory and absorption rates were the standard for assessing a residential real estate market. For the residential resale market, this information was sourced from MLSs. While not all transactions are included in MLS systems, it still proved to be statistically meaningful and an accurate reflection of the market.

Builders used inventory and absorption rates within their developments as a gage. The market for commercial office space is evaluated by vacancy rates.

NAR start tracking pending sales data in 2001, as a more timely measure of the health of a market. There are shortcomings in any statistical measure; none is perfect. There are important indicators in the pending data which cannot be learned from a study of absorption rates.

Pending data tells us when buyers are stepping up or backing away. To gage the health of a market, pending, closed and current inventory should all be considered. Inventory levels are calculated based upon current inventory and closings. The closings of today, however, represent buying decisions from a few months ago. Pending data from this month tells us about buying decisions made this month; relevant information when assessing the direction of a market.

For inventory rates, I look at charts by specific area for a period of at least 12-24 months that provides detail by month. I pull the data directly from the MLS. While there may be some sales data missing, and not all available units are counted, it is statistically relevant. An area may shift from an inventory level of 6 months to 10 months within weeks. If one looks at only one piece of data, it can easily be viewed out of context. Look at data over time and look for patterns and relationships.

Deborah Madey - Broker
Peninsula Realty Group - New Jersey

Julie,

I should have used 'near' in my post as it was written in the article, sorry if it caused you confusion. If you look at the 12 months of May to April, it is near the bottom with the exception of the winter months, and not far off from April a year ago. It's typical for home inventory to trail off for the holiday season, especially in December, and to gradually pick up to normal levels when approaching spring. The levels they reach wouldn't be a good measurement of declining inventory, but the increasing sales from Jan would be a positive sign.

There's actually something more meaningful to see in that graph. Aug 2007 was the peak with an all time inventory record set. Levels have been below that point since, even with foreclosures continuing.

If you look back even further, you'll find the last 6 consecutive months of 2006 first began seeing sales declines. Although prices held through 2006, the increase in inventory began, and that combined with the sub-primes started the price declines in 2007. You can see the rise in this graph from the RJ, and also another winter month dip in inventory.

http://media.lvrj.com/images/2084168.jpg

'06 sales declined as inventory rose and then prices declined. Since the peak in Aug., inventory has stared to decline, the past 4 months sales rose and as the article mentions multiple offers coming in, a current trend in the opposite direction. That information tends to be a little more telling than an estimate of months of inventory based on an unknown formula that can vary from source to source.

Roberta,

Thank you so much for taking the time and effort in answering my subquestion. I'm not sure if we are reading the same data. In the chart that you supplied as the link: http://media.lvrj.com/images/2670015.jpg
It shows inventory rising since December. I don't see the "12 month low in inventory" Perhaps it is true that two people can look at the same exact data and see two different things. I thank you for the referances as I am looking for opinions from all sources.

try looking at this website: http://www.housingtracker.net

you can see trends in listings wiht prices, timing and other factors. hope this helps.

Hi again Julie,

There just happened to be a very good article on the Las Vegas housing market in this morning's Review Journal. This data is historical and over a period of time indicating an establishing trend, rather than an estimate of what may or may not be happening down the road.

It shows the 4th straight month of increases in existing Vegas home sales, sales volume exceeding YTD figures, and a 12 month low in inventory, This information is also broken down into the different categories used to compile the data. While not specific, the article also mentions the multiple offers coming in below $350k that indicates additional demand that isn't able to be shown through the collected information.

http://www.lvrj.com/business/18721109.html

Kevin,

For what it is worth, My Broker has always said that 4-6 months is a neutral market.

Here's a great article about types of real estate markets and how to determine what kind of market you're in:
http://www.crystalclearmarket.com/?p=66

Trulia has the Summerlin housing stats here:
http://www.trulia.com/real_estate/Summerlin-Las_Vegas/4910/

Hope this helps. Good luck to you.

Hi Julie,

You ask "Are statistics subjective?"

Anytime someone is predicting the future with them, yes they are. There's even a clue in the article you posted.

"according to SalesTraq formula"

From reading the article, I have no idea what their formula is, do you? Does it somehow include the home permits mentioned? Only single family, or a mix of resales, new construction, condo hotel units, multifamily, and building lots? It uses what basis? In 17 months would all current inventory be gone, or will it reach ____ months level? What estimates are they using for the number of additional resales, or number of buyers, that will be coming onto the market for 17 months? What about future population and employment? Again, I have no idea what they've used to come up with their "projection".

Then, simply because something is published, does that necessarily make it accurate? Seems there's some contradictions within the article from two different research companies. SalesTraq reports 1076 new homes sold in March. Home Builders Research claims 1146. SalesTraq says 423 new permits, while HBR says it was 395. SalesTraq offers figures for home resales in March at 980, but HBR gives a figure 1899, almost double the amount and close to MLS listed properties that are reported as closed that month, that isn't mentioned in this story.

Why the differences in the same article? Shouldn't that itself be a turn off?

Here's another story from the same staff writer from just a few months ago, about yet another research company's data projecting a Las Vegas housing shortage by 2009.

http://www.inbusinesslasvegas.com/2007/12/14/realdev.html

Many months of supply quoted by one, and a housing shortage by another. So which is correct? It seems one recent Trulia poster is already experiencing the Las Vegas demand in workforce housing, getting outbid by multiple offers.

http://www.trulia.com/voices/Home_Buying/Does_anybody_know_o…

I'm sure if you look through the threads Blaze isn't alone in facing increased competition, and that also doesn't register in statistics. Another interesting item in that thread indicates other demand that isn't shown...banks taking so long to respond even to their owned properties, simply because they don't have the staff to handle the volume. Throw in those that are waiting on short sale responses and there would be even more buyers, and demand, in the mix. All these pre-approved buyers that are willing to buy, and would lower the inventory and any guesstimate of months of supply, but statistics don't include them.

For the home buyer like Blaze, it irrelevant if there's 7.6 months, 17, or 36 months of supply, he's facing multiple bids at his price point now. At best, any answer to months of supply is a guess. It's a very general and broad based estimate that has lots of room for error, and subjectivity. For a home buying decision it's not an absolute indicator.

I'm frustrated, and confused. Are statistics subjective? This article from "In Business" claims that there are 17 months of inventory. Marilyn said that there is 7.6 months. It is a turnoff when Realtors seem to say one thing, and published articles say another. Great question, please help. How many months are there, and why such a differing opinion here:

May 5, 2008
Housing price slide flattens and sales increase despite record repossessions




By Bryan Wargo. Sales of new and existing homes in March hit their point this year, but they were over shadowed by repossessions, which set a record for the Las Vegas market.
In March 2,468 homes were repossessed, eclipsing the record of 2,178 set in January, according to statistics released Tuesday b SalesTraq. During the first quarter, 6,516 homes were repossessed, more than the 5,975 new and existing homes and condominiums sold.
Despite the increase in foreclosures in March, existing home prices remained relatively stable. They fell $1,000 from February to $247,000, 14 percent below a year ago, SalesTraq reported.
The median price of new homes dipped slightly in March to $266,135 about $5,500 below February. That price is 16 percent below the price in March 2007.
As often happens in March, sales climbed: 1,076 new homes sold, about 200 more than February. During the month, 980 existing homes sold, 79 more than in February.
New home permits picked up slightly with 423 issued in March. That’s 53 more than February, but the number of permits issued was still 73 percent below March 2007.
Inventory dropped for the sixth consecutive month with a 17 month supply, according to SalesTraq formula. In March 22,181 homes were on the Multiple Listing Service, down about 650 from February. The service had 27,049 listings in October.
Home Builders Research
Home Builders Research reported 1,146 sales of all types of new homes in March, the third consecutive monthly increase. In the first quarter 2,910 homes sold, down 44 percent from the same period in 2007.
In the first quarter 2,393 new single family homes sold, a drop of 40 percent over 2007.
In March 395 new home permits were issued, with 1,133 issued for the first quarter, a decline of 74 percent over last in year.
The median price of new single family homes in March was $259,940, a year to year decrease of $57,401 or 18 percent.
As for the resale market, Home Builders reported 1,899 sales in March and 4,916 for the first quarter, a declined of 34 percent from the first quarter of 2007.
The median price of resale transactions in March was $230,000 a year to year decline of $55,000 or 19 percent, the firm reported. The high number of foreclosures and short sales continues to drag down the price, home Builders Research President Dennis Smith Said. Buyers continue to look for bargains, Smith said.
Of existing home sales, 599 were under $200,000; 794 were from $299,999; 342 were from $300,000 to $749,000; and 26 from $750,000 to $999,999. Thirty four homes sold for $1 million or above.

Actually economist consider that anything above 7 months inventory places you in a buyers market. Last year at this time we had 22 months of inventory. We are presently at 7.6 months of inventory in Las Vegas and it has been declining for the last 4 months. This means that we are close to the transition market again if things continue in this manner. Be aware that the market does not stay long in a transition market which I'm guessing you are referring to as a balanced market. The market stays for the longest period in a buyer or a seller's market. The other determining barometer of where we are at can be from a recent article found in the Nevada Legal News. This article mentions that there are "scavenger investors" that enter the stock market on real estate investments. These investors have a feel for when the market is shifting after years of watching things. This type of investor, according to this article has just entered the market, which is apparently a sure sign that we have reached the bottom. No one knows exactly what will happen in the real estate market, but signs presently in Las Vegas, show we are entering a shift.
I'll be happy to help you find that perfect home in this great market while the prices are stil low. Give me a call: Marilyn Orcutt, Keller Williams Realty Las Vegas, (702) 348-7146, or email me at iluv2sellre@kw.com

Hi Kevin,

Very general rule of thumb, 5 ½ - 6 months is considered a "balanced market". Inventory and sales volume can vary throughout the year so you would need to have a period of consistency to determine if a market is stable at a point.

I'd have to add that any time you try to generalize you'll leave gaps. As Len points out real estate is regional, and it can even be that way inside an individual market or price point.

Nationally as of March the MLS had an estimated 9.9 month supply of homes. Generally speaking a buyers market, yet even with those high amount of months on average, there are some cities that are seeing price gains. One local example of variations you may find, here in Las Vegas in the middle of the foreclosures and bargains in price per square foot, a sales price record is set.

http://www.lasvegassun.com/blogs/elsewhere/2008/feb/27/mgm-c…

I believe you'll find similar volatility in trying to nail down a buyers or sellers market for a general location even when close to being balanced. Certain areas within it can be more desirable to buyers than another, a certain number of bedrooms, or a price point may dominate a market. When you reach extremes on either side of balanced it generally leans more to overall, but not absolute.

I also only know of supply in months that is tracked locally or nationally by National Assn. of REALTORS® and their metropolitan associations. Their figures also wouldn't include FSBO, private or builder sales, only properties listed through them. You may want to contact agents for the specific markets you're interested in following.

Kevin,

We can pretty much only give you each individual area info. There may be some general info that states what the average invntory is nationally. But remember, real estate is local. National averages mean very little in the housing industry.

The Las Vegas area currently has about 25,000 homes available on the market. We are definitely considered a buyer's market with this much inventory. In an average market for Las Vegas, we would normally have about 10,000 to 12,000 homes on the market. That would just about even out the market for buyers and sellers. I forgot what the number of months supply it comes out to be, but right now it is quite high. Our market is rated highest in foreclosures, which I am sure has some effect on the length of time the homes are on the market. I hope this helps.