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How do you define a buyer’s market vs. a seller’s market in real estate? The simple answer is that when there’s more supply than demand, it’s a buyer’s market and when there’s more demand than supply, it’s a seller’s market.

Demand in real estate is commonly judged by months of inventory based on closed sales.

Buyer’s Market = 6 or more months of inventory

Seller’s Market = Less than 3 months of inventory 

Neutral Market = 3-6 months of inventory

So What Does Months of Inventory Mean?

Months of inventory takes into account the number of homes for sale on the market with recently sold homes and reflects the number of months it would take to sell all homes currently on the market. You can calculate months of inventory by dividing the total number of homes for sale over the number of homes sold in one month.

When months of inventory are low, it’s a fast paced market dominated by buyers and few sellers. When months of inventory are high, there are generally more homes on the market (dominated by sellers) with fewer buyers or sales.

Currently SoCal is a Neutral Market

According to Trendgraphix, there are 3.9 months of inventory across Orange, LA, San Bernardino and Riverside counties, qualifying our current SoCal real estate market as neutral, however with such low inventory the market is still favoring sellers. Inventory is slowly making its way up with an increase of 2.6% from March and 11.6% compared to April 2014.

Riverside County has the most inventory, leading the pack with 5.3 months. Across all counties there was a spike from the beginning of the year, jumping area wide from 2.7 months in December 2014 up to 3.8 in January 2015.

Another drop in inventory and a spike in sales could bring back the seller’s market however sold units are down from last month and last year. Likely the market will shift closer to a buyer’s market as more sellers enter the market and list this summer.

Your Neighborhood Market

A buyer or seller’s market can even be calculated on a neighborhood level. For example, if you see that there are 50 homes for sale in January, but only 10 actually sold, this means there are 5 months of supply in your area if only 10 homes sell for each month and no new homes came onto the market.

If you need help calculating months of inventory and what kind of market your local area is experiencing, reach out to a First Team agent. Equipped with the latest tools and systems, our agents have the power to run any stat you need to know about the Southern California real estate market.

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