The Three Kinds of Markets
There are three kinds of real estate markets:
An appreciating market is a "Seller's Market" where there is more demand than there is inventory. Values are going up and homes are selling quickly. This market is easily identified when the Average Monthly Supply runs from just a few weeks to less than 5 months.
Next, we have a stable market wherein Supply and Demand are in relative equilibrium.
Values are generally flat. It's neither a buyer's nor a seller's market, and the Average
Monthly Supply runs between 5 and 7 months.
So What's the Average Monthly Supply?
Well, it's similar to the average selling time. Here's an explanation. Suppose you had
a little neighborhood (a micro market) of 100 homes. Suppose there were 10 homes on the
market and every month one home sold and another home came on the market. This market
would have an Average Monthly Supply of 10 months. It's simple: one home sells every month
and there are 10 homes on the market so this market has a 10 month supply at the current
rate of absorption.
Our real estate markets move in cycles; seasonal and cyclical. Our inventory of
properties for sale (supply) swells in the spring and summer and shrinks in the fall and
winter. The same thing happens with demand. Buyers flood the market in spring and summer
and retreat in the fall and winter. Inventory and demand generally peak in July or August
and reach their lowest point in January and February. I call this "seasonality".
Our real estate market also moves in longer cycles. These cycle are harder to predict.
Some experts say they last 7 years. It appears that these longer real estate cycles are
nearly identical to normal "business cycles"; perhaps beginning and ending a bit
I hope that this information has been helpful to you. If you have questions about anything at all, don't hesitate to contact me.