Tess Kalinowski Real Estate Reporter
Many are correctly referring back to their Economics 101 classes where they learned that a decline in sales and/or a rise in inventory can cause prices to fall - but are forgetting that our starting point matters.
If our market is balanced today and sales fall and/or inventory rises, then prices will likely fall. But what happens when we are starting from a market that is not balanced, like last year when demand and supply were so disconnected that prices were rising 33% per year?
In the case of the market for detached houses, it looks like the decline in sales and rise in inventory has helped move us back to a more balanced market.
We can see this by looking at the balance between supply and demand in the market. The months of inventory (MOI) compares the total number of homes available for sale in a given month against the number of sales in that month. For example, if there are thirty homes for sale and ten houses sell in a given month, we would have three months inventory (an MOI of 3). The higher the MOI, the more likely we are to see downward pressure on prices.
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