Answers — Market data
How do you calculate months of inventory in real estate?
Months of inventory is the number of active listings at the end of a month divided by the number of closed sales in that month. It estimates how long the homes for sale would last at the current sales pace if no new listings came on the market.
By the Market X Consulting Editorial Team · Updated
Market X Consulting’s Market Report Kit calculates it from the figures you enter from your own MLS each month. In the fictional sample market below, 360 active listings and 90 closed sales give 4.0 months.
What does 3 months of inventory mean?
It means that at this month’s pace of sales, the homes currently for sale would all be sold in about three months if no new listings arrived. A lower number means supply is tight relative to demand; a higher number means buyers have more to choose from.
There is no single official cut-off between a seller’s and a buyer’s market that holds for every area and price range. The useful comparison is your own area against its own history: the same month last year and the trend of the last several months.
How do you calculate absorption rate?
Absorption rate is the same relationship turned around: closed sales in the month divided by active listings at month end. In the sample, 90 sales against 360 listings is an absorption rate of 25.0%, the share of available homes that sold that month.
| Month | Active at month end | Closed sales | Months of inventory | Absorption |
|---|---|---|---|---|
| Jul 2026 | 342 | 96 | 3.6 | 28.1% |
| Aug 2026 | 351 | 92 | 3.8 | 26.2% |
| Sep 2026 | 360 | 90 | 4.0 | 25.0% |
Should you divide by one month of sales or a 12-month average?
Either can be right, as long as you say which and keep it the same every month. One month of sales reacts quickly but swings with the season; an average of the last twelve months is steadier. In the sample, 360 listings over an average of 85 sales a month is 4.2 months instead of 4.0.
Some reports also count pending sales instead of closed ones, which points a month or two ahead. Different definitions give different numbers for the same market, so write the definition on the report.
Where do the numbers come from?
From your MLS statistics tool: active listings at the last day of the month and closed sales during the month, for one area, one property type and one way of pulling the numbers, kept the same every month.
Consistency is what makes month-to-month and year-over-year comparisons mean anything. Change the area or the property type and the trend line breaks.
What else belongs in a monthly market report?
Months of inventory explains supply; a client also needs price and pace. Add the sale-to-list ratio, median sale price, median days on market and new, pending and closed counts, each compared with the same month last year. In the sample, total sale price over total list price is 97.6%.
Year-over-year is the fairer comparison in a seasonal market: it sets September against September.
These answers and the instruments are planning and analysis tools. They are not legal, tax, accounting, financial or appraisal advice, and they do not promise or imply any income or result. Every example figure is a sample chosen to show the arithmetic, not a benchmark, a market figure or an expectation.