Here's a great way to analyze available inventory as it relates to past sales. First, forget the number of months inventory stuff. Rubish.
Focus on the fact that you are simply trying to get your mind around the housing market for a specific area in a moment in time.
To accomplish this for myself, I like to distribute active and recently sold. Distribute this data over a price interval and overlap the two bar graphs. This method gives a much clearer picture of market conditions for a specific area. Distribute the number of homes "for sale" across the pricing interval. I like to begin at $100,000 and increase every $25,000. Next, identify how many units (houses) are priced within each price interval.
One you have this done and bar-graphed, do the same thing for the most recent quarters sales. Overlay the two graphs and you will see the light. This method will answer the question of available inventory related to what's selling.
If you are going to use excel for this effort, you'll need to use the frequency formula.
To see this method of market analysis used in a sample, visit http://www.fizbomap.com/blog/2007/03/23/ada-county-housing-m
1. Find the number of active listings in a specific area.
2. Find the number of current transactions that are pending sale in that area,
3. Divide the active listings by the pending transactions and multiple the result by 60 (days)
4. The result should be the days of inventory for that specific area.
300 Active listings/ 50 Pending transactions would be 360 days of inventory.
Likewise, 50 active listings / 125 pendings sales would be about 17 days on the market.