The How: MSI is typically calculated by dividing the current month’s inventory figure by a rolling 12-month calculation of pending sales. It’s also possible to use monthly pending sales, monthly closed sales or rolling 12-month closed sales, but ShowingTime prefers the rolling 12-month pending sales figure to adjust for seasonality and to retain the forward-looking, predictive nature of pending sales, rather than the backward-looking closed sales figure.
The Oops: MSI is often mistaken for an inventory-only related metric. MSI is related to inventory but is also affected by the relationship between inventory and buyer activity. Buyer activity can also impact other metrics such as days on market (or DOM) that can move with MSI but are not directly correlated.
The Beauty: MSI seeks to quantify how many months it would take the market (in its current condition) to absorb the entire active inventory, and can serve as an indicator of whether the market is favoring buyers or sellers. Generally, a balanced market will lie somewhere between four and six months of supply. If MSI is displayed as less than 4.0, sellers have gained asking power. If MSI is above 6.0, buyers have gained negotiation power and agents may need to adjust marketing strategies for aged properties and stale listings.
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1 National Association of Realtors, “Inventory and Months’ Supply,” January 2021
2 Northstar MLS, “Months’ Supply of Inventory"
3 Icicle Creek Real Estate, “How to Calculate Months of Supply,” July 2022
4 Norada Real Estate Investments, “Absorption Rate and Months of Inventory in Real Estate," December 2022
5 Springs Homes, Successful Pricing: Month’s Supply of Inventory (MSI),” June 2015