Months of Inventory

In the past several months, we have watched the median price continue to climb in our region resulting from the robust demand for housing compared to the lean supply of housing. In classic economic theory, when demand outstrips supply, prices go up.The charting system that we use looks at those median price values for the same month for the last 10 years to paint a very vivid picture of our market, and the rising values.For this look at the market, I would like to draw your attention to a key statistic that has been at play in those rising median prices, but I will limit my discussion to the Eastside. Other areas in this region are generally tracking along the same lines, so I will focus on what’s close to our primary market area.The statistic, or index, presented here is what we in the profession term “month’s supply” of inventory. This number is derived by dividing the number of “Active” and available homes in the area by the number of “pending” contracts that have occurred in the previous 30 days. In a generally balanced market, there would be about 3 – 5 months of inventory available.An arithmetic example would be a case where there were 80 homes available in a specific market area, and 20 homes in that area were entered into contract for purchase in the previous 30 days (or approximately a month). 80 divided by 20 would yield a 4 month supply of inventory.The charts provided below all portray a very strong Seller’s market with inventory levels all below 2 month’s supply except for Mercer Island and West Bellevue where the median prices are so much higher that these markets tend to operate independently of the areas in our region.As you review the charts, notice how little actual change there is in the supply from week to week over a six month period. This is even more remarkable when we consider that these charts span from late spring to early winter, amid a period of time in which there are huge increases and decreases in actual inventory counts.When circling back to median prices, we will continue to see them rise as long as we continue to experience the low inventories caused by super-hot demand as reflected in the charts below:

When writing about our market, I try to find the points of interest that are fundamental to what is going on, and I hope that I have achieved that for you in this quick presentation.Thanks for your patience in reading through this.Bill Badgley