The What: Whether you call it ‘Inventory,’ ‘Active Listings’ or ‘Homes for Sale,’ they all refer to the same thing. It's simply a raw count of the number of properties being actively marketed and categorized as ‘active listings.’
A buyer can attend a showing or open house or write an offer on any property in active status – barring some contingencies, temporarily not available for showing and similar statuses.
Inventory represents the active supply of properties on the market. Any time a seller lists a property, it is considered to be part of inventory.
The How: The inventory number is calculated by simply taking a count of the properties marked as active on the last day of the month. For example, Q2-2017 inventory will be the number of properties in active status on May 30, 2017.
Think of inventory as the water level in a bathtub. New listings enter through the spigot, and closed sales are flowing out of the tub through the drain. At any given point of time, the water level of the tub represents inventory.
That level, however, is nearly infinitely variable. That's why inventory is simply a balance statement instead of any sort of cumulative measure, since there are a high number of status changes and flux through any given day, week and month. Capturing a count at month's end allows for meaningful, apples-to-apples comparisons.
Perhaps the flow of water entering the tub (new listings entering the market) is increasing while the flow of water draining out of the tub (closed sales leaving the market) is decreasing, thus the water level (inventory) is rising because more water is entering the tub than leaving it.
The Oops: There is sometimes confusion about how inventory is calculated and when it is captured. Some people also confuse new listings with inventory. Both measure the supply side of the market, but they capture different things.
The Beauty: A lot of eyes watch inventory levels. In low-inventory markets, buyers can become frustrated with a lack of options that meet their needs in their desired areas. When more sellers list their homes it, of course, helps buyers looking to make a move. New construction activity also helps to increase inventory levels.
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