Months of supply is active listings divided by the monthly sales rate. Roughly four to six months suggests balance, but the figure only means something within the specific price band and submarket — a city can show three months overall and eighteen above a certain price.
The closest thing residential real estate has to a single measure of balance, routinely quoted at the wrong level of aggregation — which makes it misleading exactly when it matters.
Months of supply is the closest thing residential real estate has to a single measure of market balance. It is also routinely quoted at the wrong level of aggregation, which makes it misleading in precisely the situations where an agent most needs it.
How long it would take to sell the current inventory at the current rate of sale, if nothing new were listed.
Active listings divided by the monthly rate of sales. Six months of supply means that at the present pace, today's inventory clears in six months.
The conventional reading is that roughly four to six months indicates balance, less favors sellers, more favors buyers. That framing is a reasonable starting point and a poor stopping point.
The single most important thing to understand.
A city can show three months of supply overall while carrying eighteen months above a certain price. Those are not the same market and blending them produces a figure that describes neither.
Supply should be calculated within the band that actually competes: the price range, the submarket, and where relevant the property type. Waterfront and inland are different markets. New construction and older stock are different markets.
An agent quoting citywide supply to a seller at the top of the market is giving them a number about somebody else's property.
Thin markets. Where a submarket sells four properties a year, monthly sales rate is nearly meaningless and the resulting figure swings wildly. Use a longer trailing period, or accept that the measure does not apply.
Seasonal markets. Supply calculated in the off-season looks alarming and calculated in peak season looks tight, and neither describes the year. Compare against the same period in prior years rather than against the previous month.
Unlisted inventory. In markets where a meaningful share of property trades privately, active listings understate what is available and sales understate activity. The ratio can be wrong in either direction.
Aspirational listings. Property listed well above what it will fetch is inventory in the count but not inventory a buyer will purchase. In luxury markets this can be a substantial share, which makes supply look worse than the functional market is.
Supply is a stock measure. It tells you what is there, not what is happening.
Read it alongside sale-to-list ratio, which describes negotiating conditions, and the direction of travel over several months. Three months of supply falling from six is a very different market from three months rising from one, and the level alone conceals that entirely.
New listings against sales over the same period is also worth watching, because it shows whether supply is building or draining before the ratio moves.
It is genuinely useful for explaining why a market feels the way it does.
A seller frustrated by slow activity understands eleven months of supply in their price band more readily than any general statement about conditions. A buyer being pushed to move quickly understands two months of supply.
Show the segment, show the trend, and say plainly what it does and does not measure. That is a more credible conversation than quoting a headline figure, and it is the kind of thing clients remember.
Months of supply is a good measure asked at the right scope and a poor one asked at the wrong scope.
Almost every published version is at the wrong scope for a luxury conversation. Calculating it properly for the specific segment is not difficult, and it is one of the more visible ways an agent demonstrates they are working from data rather than impressions.
How long current inventory would take to sell at the current pace if nothing new were listed. Active listings divided by monthly sales. Four to six months conventionally indicates balance.
Because a city can show three months of supply overall while carrying eighteen months above a certain price. Those are different markets, and blending them produces a number describing neither.
In thin markets where the monthly sales rate is nearly meaningless, in seasonal markets where the same figure looks alarming or tight depending on when you calculate it, and where a meaningful share of property trades privately.
Property listed well above what it will fetch. It counts as inventory but no buyer will purchase it, which in luxury markets can make supply look considerably worse than the functional market is.
Sale-to-list ratio for negotiating conditions, and the direction of travel. Three months falling from six is a very different market from three months rising from one, and the level alone conceals that.
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