Real estate terminology can be confusing and, at times, overwhelming. Navigating this new field while also finding your dream home can be intimidating. But not to worry, a little bit of research can go a long way and help you gain your bearings when exploring the real estate market.
A term that you can familiarize yourself with is one you have perhaps already heard before. This term is Months of Inventory (MOI). However, in order to understand what MOI means, it may also help to understand its purpose.
MOI is the relationship between sales and the number of properties currently on the market. This is determined by a calculation which measures the relationship between supply and demand. In this sense, it may be helpful to think about MOI in this way: If homes were to stop entering the market, how many months could it possibly take to go through all of the available homes that are currently for sale?
This calculation needed to measure the relationship between supply and demand is determined by dividing the number of homes sold monthly by the total number of properties for sale on the last day of the month.
Therefore, MOI gives you a generalized estimate of how many homes are currently for sale in your area.
Most of the time, MOI undergoes fluctuation. For example, if many homes sell, then the MOI in your area will go down. Yet, if the sales are generally stable and not many newer homes are hitting the market, then the number of available properties will decrease and, in turn, affect the MOI.
Let’s put this into perspective. For example, if there were 3000 listings on Ontario MLS® in July and 1000 of those homes sold, there would be three months of inventory if only 1000 homes sold in August and September.
This concept is beneficial for both buyers and sellers as it can help determine which months are a buyer’s or seller’s market. Generally, if the MOI is higher, there are more sellers than buyers, meaning it is a buyer’s market. Alternatively, if the MOI is lower, there are more sellers than buyers, making this a seller’s market.
To round things up, MOI is a great way to visualize and understand how many months it would take for the market to work through the entire inventory that is currently active. With this, buyers and sellers will be able to see what and who the market favours and figure out when the best time is to sell or buy your property.