The 4-6 month equilibrium and market power shifts
Months of supply (active listings divided by average monthly sales) indicates how long it would take to clear all available inventory at the current sales pace. Under 4 months signals a sellers market with strong negotiating power; prices often rise and bidding wars emerge. 4-6 months is balanced, reflecting stable supply/demand equilibrium. Above 6 months signals a buyers market where inventory is surplus, negotiating leverage shifts to buyers, and price pressure increases. These bands are consistent across US markets and are used by agents and investors to quickly assess local conditions.
Inventory and the lag between intent and action
Active listings lag actual availability because sellers and agents are slow to delist withdrawn or pending homes, so inventory often understates true supply (unused distressed properties, vacant land). This distortion matters most in slow markets where listed inventory piles up faster than listed inventory clears. Sophisticated investors look past raw inventory numbers to estimate true available supply, including off-market pocket listings and probate/REO pipelines, to forecast DOM and price moves more accurately than raw inventory suggests.