The Denver Metro area has 1.7 months of inventory; what does that mean?


The Denver Metro area has 1.7 months of inventory according to the most recent data available (https://cohomeblog.recolorado.com/market-watch-december-2018/?_ga=2.15239476.328275360.1548188876-1371562310.1546895946). But what does this mean? "Months of inventory" is a common term used in the real estate industry to describe how long it would theoretically take to sell all the current listings. Here is an easy example to help illustrate the point. Let's say that for the past few months there have been 1000 homes sold each month. Let's also say there there are 3000 homes for sale in this region. In this example there is 3 months of inventory. Some people think this means in will take 3 months for a home to sell but that is not the case. "Months of inventory" is simply a statistic used to gauge how the housing market is doing. In the Denver metro area we have seen a very hot market the past few years. I have seen "months of inventory" as low as 0.7 months. In those times I would see dozens of buyers for every seller, resulting in multiple offers and low days-on-the-market. Most people in the real estate industry consider 6 months of inventory to be a healthy and balanced market. With 6 months of inventory there are plenty of listings for potential buyers to explore. This leads to buyers and sellers having equal footing in negotiations. Many people these days are saying the housing market in the US has gotten much worse. I agree that rising interest rates and higher asking prices are cooling the market, but 1.7 months of inventory still indicates a market ripe for continued appreciation.