What does “months of inventory” mean for buyers and sellers?

If you are planning to buy or sell a house or condo in Ottawa, there’s a key number worth noting, because it has a big impact on your experience.

When the Ottawa Real Estate Board releases sales results and average prices each month for our market, keep an eye on the phrase “months of inventory.” I send summaries to my clients each month to help buyers and sellers understand current market conditions.

Along with average sale prices and how many properties sold each month, the “months of inventory” calculation summarizes the kind of market you’re facing. I can help you use that information to prepare your strategy.

Looking at April of 2023, for example, the Ottawa Real Estate Board reported the resale market had 1.9 months worth of inventory available for condo units and for houses.

What does “months of inventory” refer to? It’s a rough calculation of how long current inventory would last, based on the rate of sales the previous month, if no additional properties were added to the inventory and sales continued at the same rate.

For comparison, the months of inventory number in April 2023 was better than it was in April of 2022, when there was a mere 0.9 month’s worth for residential properties and 0.8 month’s worth for condo properties. That meant that inventory at that time would have sold out in less than a month if no new properties were added. That’s why this period was marked by so many bidding wars and big increases in average sale prices in our region.

While the inventory in April of 2023 was an improvement over a year earlier, the 1.9 months available mean that Ottawa was back in seller’s market territory, after it had been in balanced territory for a few months at the end of 2022. The months since then have seen lower than usual new listings added to the market.

How Months of Inventory affect the Market:

A Seller’s Market: A seller’s market, as the Board described Ottawa in April, typically means there are two months or less of inventory available. For much of the last few years, Ottawa and other Canadian cities have seen seller’s market conditions, because of lower than usual new listings.

With the market favouring sellers, buyers sometimes find themselves in bidding competitions. Average sale prices rise quickly, and many buyers feel pressured to drop traditional conditions from offers, such as pre-sale home inspections.

Balanced Market:  If a market has from two to four months of inventory available, it would generally be described as balanced. This allows buyers more breathing room than in a seller’s market, with less pressure to make instant decisions. It also allows room for traditional negotiations over asking prices.

Buyer’s Market: A market needs four months or more of inventory to be described as a “buyer’s market.” We have not seen this much inventory in the Ottawa market for a long time. But when those conditions arise, properties take longer to sell, and buyers have an upper hand on requesting conditions and in negotiating prices.

Where we stand now:

With declining new listings recently, the months of inventory dropped to 1.9 months in April. That was down from a high of 3.8 months in January of this year.

This has brought conditions back to favouring sellers and has meant properties have been selling faster. In April, residential-class properties sold in an average of 27 days. That was down from 37 days in February.

Condo properties in April sold in an average of 33 days, down from 43 days in February.

Average sale prices in April, while below April of 2022, were up 13.9% from December of 2022, the Ottawa Real Estate Board reports.

And properties in the city’s most popular neighbourhoods are attracting multiple offers again.

The Ottawa Real Estate Board will release the official statistics for May’s sales in early June, so it will be interesting to see where the months of inventory stands then.

If you’re considering buying or selling property in coming months, I’d love to tell you more about the current market and conditions in your area. With more than 30 years of experience as a Realtor in Ottawa, I’ve developed successful strategies to assist buyers and sellers in all market conditions.

You can read more about me on my site, www.nancybenson.com Feel free to give me a call, at 613-747-4747. CHECK OUT OTTAWA LISTINGS