Conventional wisdom says that a balanced real estate market is about 6 months inventory, maybe 5, depending on the source. “Months inventory” is calculated by dividing Active listings by Number of Transactions for any given month.
So, to use the Lethbridge real estate market as an example then, let’s look at the numbers for August, 2012:
- Number of active listings for single detached family homes in the City of Lethbridge: 584
- Number of sales (completed transactions) for same: 120
- Months inventory: 4.9 (584/120)
These numbers would indicate that Lethbridge real estate is sitting in balanced territory. But here are the numbers going back 13 months so you can compare Lethbridge months inventory for August 2011 to present and see if there is a trend:
Of course, you could run these numbers for all types of Lethbridge real estate (e.g. condos) and also by major “sub area” (north, south and west Lethbridge). For example, I found that months inventory for the north side has shrunk by a full month, when looking at August 2011 versus August 2012 (6.1 months vs 5.1 months). When I looked at the condo market in Lethbridge, it appears much more saturated over the past year than for single family detached homes.
The caveat with any statistical analysis is that one number or even one data set does not alone convey a complete picture of what’s happening in real estate (or in any other market/industry for that matter). In fact, the ways you can slice and dice real estate statistics are numerous!
For example, the Real Estate Council of Alberta (RECA) blog lists these three figures as key to understanding market conditions:
- number of days on the market
- sold price as a percentage of listing price (or “list-to-sale ratio”)
For single detached homes in Lethbridge, August, 2012 numbers look like this:
- Average cumulative days on market: 97
- List-to-sale ratio: 97.2%
- Sales-to-new-listings ratio: 69% (120/175)
Fortunately, your real estate agent can offer not only additional market stats but qualitative insights into how to achieve the best value for your homebuying dollar (or conversely, get the best price for your home as a seller).
What do you think? Is the Lethbridge real estate market balanced? Let me know what you think in the Comments below!