Market Reports

How to actually read a housing market

The headline you read this morning was about the national market. You do not live in the national market. You live in a neighborhood, in a price band, in a property type — and those can be moving in the opposite direction from the country as a whole, at the same time.

These are the numbers that actually tell you what is happening: months of inventory, days on market, absorption rate, list-to-sale ratio. Learn to read them and you will never again have to take anyone's word for whether it is "a good time."

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Months of inventory — the single most useful number

Months of inventory answers one question: if no new listing ever came on the market again, how long would it take to sell everything currently for sale, at the current pace of sales?

Months of inventory = Active listings ÷ Homes sold per month

Suppose your area has 180 active listings and homes have been selling at a pace of 60 per month. 180 ÷ 60 = 3.0 months of inventory. That is a seller's market: there is three months of supply and buyers are competing for it.

These thresholds are long-standing industry rules of thumb, not laws of physics. What counts as "balanced" genuinely differs between a dense urban market and a rural one, and the useful comparison is always against that same market's own history — not against a national benchmark.
Months of inventory	Condition	What it means in practice
Under about 4 months	Seller's market	Multiple offers are common, homes sell quickly, prices trend up. Buyers must be prepared and decisive.
About 4–6 months	Balanced	Neither side has structural leverage. Well-priced homes sell; overpriced homes sit.
Over about 6 months	Buyer's market	Supply exceeds demand. Buyers negotiate on price, repairs, and concessions. Sellers must price and prepare sharply.

The critical trick: compute it for your slice, not for the whole county. A metro area can sit at a balanced 5.0 months overall while three-bedroom homes under the median price are at 1.8 months (fierce competition) and luxury homes are at 11 months (a deep buyer's market). The aggregate number describes nobody.

Median versus average — and why the difference matters

The median is the middle sale: half sold for more, half for less. The average (mean) is the total of all sale prices divided by the number of sales. They are not interchangeable, and the gap between them is itself information.

Real estate averages are pulled around by outliers. One $6 million estate closing in a month of forty modest sales can drag the average up by tens of thousands of dollars while the median does not move at all. That is why credible reports lead with the median.

A rising median does not necessarily mean rising values. If the mix of what sold shifted — more large homes, fewer small ones — the median rises even if every individual home is worth exactly what it was last year. This is the most common way market statistics mislead people. To see what actually happened to values, look at price-per-square-foot trends and at repeat sales, not just the headline median.

Days on market

DOM measures how long a listing sits before it goes under contract. It is a direct read on demand — and, just as often, a direct read on whether a home was priced correctly.

Falling DOM means demand is strengthening relative to supply.
Rising DOM means the opposite — and it typically shows up before prices react. DOM is a leading indicator; the median price is a lagging one.
An individual listing's DOM is mostly a pricing story. Homes that are priced right sell in the market's normal window. Homes that sit are usually not "waiting for the right buyer"; they are usually mispriced.

Watch out for the reset trick: withdrawing a stale listing and re-entering it as new resets the visible day count. Cumulative days on market (CDOM) follows the property, not the listing, and is the honest number. Ask for it.

Absorption rate

The absorption rate is months of inventory expressed the other way around: the share of available inventory that sells in a given month.

Absorption rate = (Homes sold per month ÷ Active listings) × 100

Using the same numbers as before — 60 sales against 180 active listings — the absorption rate is (60 ÷ 180) × 100 = 33% per month. A third of the standing inventory clears every month. A rate above roughly 20% is generally read as a seller's market; below roughly 15%, a buyer's market.

It is the same information as months of inventory, and which one you use is a matter of taste. What matters is watching the direction over several months. A single month is noise; three months is a trend.

List-to-sale price ratio, and the rest of the dashboard

The list-to-sale ratio is the sale price divided by the final list price. Above 100% means homes are routinely selling for more than asking — that is a bidding-war market. In the mid-90s, buyers are negotiating hard.

The other numbers I watch every month

New listings. Is supply being replenished, or drying up?
Pending sales. A leading indicator — today's pendings are next month's closings.
Price reductions. The share of active listings that have cut their price. A rising share is one of the earliest signs a market is cooling.
Closed sales volume. Is transaction activity itself expanding or contracting?
Price per square foot. The cleanest way to strip mix-shift out of a median.
Mortgage rates. They set what a buyer can pay at a given payment, and they move whole markets.

Why the national headline is almost useless to you

National housing statistics describe an aggregate that no actual person transacts in. Within a single metropolitan area, at the same moment, one ZIP code can be at 1.5 months of inventory with homes selling above asking, while another is at 9 months with sellers cutting prices. Condos and single-family homes can move in opposite directions. Entry-level and luxury frequently do.

The only market report that is worth anything to you is the one drawn tightly around your property type, your price band, and your area. That is the one I build.

What a good report should tell you. Not "the market is up." It should tell you what your specific slice is doing, whether the trend has been consistent for several months, what changed most recently, and — concretely — what that means for the decision you are actually facing.