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Front Page - Friday, April 28, 2017

What does ‘months supply of inventory’ mean?

Each industry has its own set of acronyms and abbreviations, and real estate is no exception. This week, let’s take a moment to explore the term “Months’ Supply of Inventory.”

The simplest way to explain the meaning of this term is that at our current rate of home sales, if no new properties came to market, we would be out of inventory in X number of months. This is a constantly moving gauge of the health of a real estate market and one all consumers need to understand.

The Greater Chattanooga region is currently standing at 3.6 months of supply, which is down 28 percent from March of 2016’s five months of supply. The change from two years ago is even more dramatic – 6.3 months of supply in March 2015. As a point of reference, our market peaked at 14 months of supply in mid-2009.

To interpret how this score relates to the average home buyer and seller in Chattanooga, consider the following. A balanced market, where there are an equal number of buyers and sellers, traditionally has five to seven months of supply. If a market exceeds this level, then it is considered a buyer’s market, meaning there is excess supply and the buyer has the advantage.

When the Months of Supply is lower than five months, it’s considered a seller’s market, meaning home sellers have the advantage. Thus, we are currently working in a seller’s market.

What does this mean for persons who are considering selling their house? One could assume that top dollar with limit concessions would be achieved for sellers in this market. At the same time buyers would need to be prepared to pay a premium price with limited negotiation and concessions in a seller’s market.

For example, in March of this year, the average sold home achieved 95.2 percent of its original list price versus 93.9 percent in 2015. Again, comparing to a recent buyer’s market, the region achieved 89 percent of the original list price in January 2012, when there was 10.2 months of supply.

With the number of closed sales continuing to push ahead of last year and the number of new listings declining to the previous period, there’s no indication that we will shift out of a seller’s market at any point in the near future.

If you’re considering selling your house at any point in the next two years, now is the time to consult with an experienced member of the Greater Chattanooga Association of Realtors (GCAR). With positive price appreciation and low interest rates, now is a great time to sell and lock in a low rate on your next mortgage.

The Greater Chattanooga Association of REALTORS is The Voice of Real Estate in Greater Chattanooga. The Association is a regional organization with more than 1,700 members and is one of more than 1,400 local boards and associations of Realtors nationwide that comprise the National Association of Realtors.

GCAR services Hamilton and Sequatchie counties in southeast Tennessee, and Catoosa, Dade and Walker counties in northwest Georgia. Go to www.GCAR.net for more information.