Is the Market Shifting? How Inventory Turnover Can Predict Real Estate Trends

Is the Market Shifting? How Inventory Turnover Can Predict Real Estate Trends
DATE
February 10, 2025
READING TIME
time

Understanding market shifts is crucial in real estate. Are we heading into a buyer's market, or is it still a seller's paradise?  While many factors contribute to market dynamics, inventory turnover stands out as a powerful leading indicator. For real estate professionals and savvy clients in Kelowna and beyond, tracking inventory turnover can provide a significant edge. At Coldwell Banker Horizon Realty, we believe in empowering our clients and agents with knowledge. Let's break down what inventory turnover is, why it matters, and how you can use it to navigate the market effectively.

What Exactly is Inventory Turnover in Real Estate?

In simple terms, inventory turnover in real estate measures how quickly homes are selling in a specific market. It tells us how long the current supply of homes would last if no new properties were listed, based on the recent sales pace.  Think of it like this: if you stop restocking shelves in a store, inventory turnover tells you how quickly those shelves will empty based on customer purchases.

In real estate, we often express inventory turnover in "months of supply."  A lower number of months means homes are selling quickly (high turnover), while a higher number indicates homes are lingering on the market longer (low turnover).

How to Calculate Inventory Turnover (Months of Supply)

Calculating inventory turnover is straightforward. You need two key pieces of data for your target area (e.g., Kelowna, specific neighborhood):

  1. Number of Active Listings:  This is the total number of homes currently for sale on the market.
  2. Number of Homes Sold (in a specific period):  Typically, we use the number of homes sold in the last month.

The Formula:

Inventory Turnover (Months of Supply) = Number of Active Listings / Number of Homes Sold (last month)  

Let's look at a couple of case scenarios

Scenario 1: Hot Seller's Market
  • Location:  Downtown Kelowna
  • Date: August 2024
  • Active Listings (as of August 1st, 2024): 150 homes
  • Homes Sold in July 2024: 75 homes

Calculation: Inventory Turnover = 150 / 75 = 2 Months of Supply

Interpretation:  A 2-month supply indicates a strong seller's market. If no new homes came onto the market, the current inventory would be sold in just 2 months at the current sales pace. This means high demand, likely multiple offers, and potentially rising prices.

Scenario 2:  Cooling Buyer's Market
  • Location:  Suburban Kelowna
  • Date: August 2024
  • Active Listings (as of August 1st, 2024): 400 homes
  • Homes Sold in July 2024: 50 homes

Calculation: Inventory Turnover = 400 / 50 = 8 Months of Supply

Interpretation: An 8-month supply points towards a buyer's market or at least a significantly more balanced market. With an 8-month supply, buyers have more choices, less competition, and potentially more negotiating power. Prices might stabilize or even see downward pressure.

Why is Inventory Turnover a Leading Indicator?

Inventory turnover is a leading indicator because it reflects the current balance of supply and demand. Changes in buyer demand or the rate at which new listings come onto the market are quickly reflected in the inventory turnover rate.

  • Early Warning System:  Before price changes become obvious, inventory turnover will often shift first.  A rising months of supply can signal a market cooling down before prices start to drop noticeably. Conversely, a shrinking months of supply can foreshadow price increases.
  • More Responsive than Price:  Price changes are often a lagging indicator.  It takes time for price adjustments to fully reflect market shifts. Inventory turnover reacts more swiftly to changes in buyer and seller behavior.

How Real Estate Agents Can Use Inventory Turnover

For agents at Coldwell Banker Horizon Realty, understanding and tracking inventory turnover is invaluable:

  • Pricing Strategy: In a low inventory market (seller's market), agents can confidently advise sellers to price competitively, potentially even slightly aggressively. In a high inventory market (buyer's market), a more conservative pricing strategy is essential to attract buyers.
  • Buyer Advice:  When inventory is low, agents can prepare buyers for competitive situations, the need for quick decisions, and potentially higher prices. In a high inventory market, agents can advise buyers to take their time, explore options, and negotiate effectively.
  • Market Reports and Client Communication:  Inventory turnover provides concrete data to include in market reports and client communications.  It's a clear, understandable metric that helps illustrate market conditions beyond just "hot" or "cold" descriptions.
  • Identifying Market Trends: By consistently monitoring inventory turnover trends over time (monthly or quarterly), agents can identify shifts early and adapt their business strategies proactively.  Are months of supply consistently increasing? Is it starting to decrease? These trends are key insights.
  • Hyperlocal Market Analysis: Inventory turnover can be calculated for specific neighborhoods, property types, or price ranges, allowing for highly targeted market analysis.  This granular data is incredibly valuable for agents specializing in particular areas.

Stay Ahead of the Curve with Coldwell Banker Horizon Realty

In the dynamic world of real estate, knowledge is power. By understanding and utilizing inventory turnover as a leading indicator, both buyers and sellers can make more informed decisions.

At Coldwell Banker Horizon Realty, we are committed to providing you with the insights and expertise you need to succeed in the Kelowna real estate market. Contact one of our experienced agents today to discuss current inventory turnover in your area of interest and how it impacts your real estate goals.

Disclaimer:
The content of this article is for informational purposes only and should not be considered as financial, legal, or professional advice. Coldwell Banker Horizon Realty makes no representations as to the accuracy, completeness, or suitability of the information provided. Readers are encouraged to consult with qualified professionals regarding their specific real estate, financial, and legal circumstances. The views expressed in this article may not necessarily reflect the views of Coldwell Banker Horizon Realty or its agents. Real estate market conditions and government policies may change, and readers should verify the latest updates with appropriate professionals.

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Is the Market Shifting? How Inventory Turnover Can Predict Real Estate Trends

Understanding market shifts is crucial in real estate. Are we heading into a buyer's market, or is it still a seller's paradise?  While many factors contribute to market dynamics, inventory turnover stands out as a powerful leading indicator. For real estate professionals and savvy clients in Kelowna and beyond, tracking inventory turnover can provide a significant edge. At Coldwell Banker Horizon Realty, we believe in empowering our clients and agents with knowledge. Let's break down what inventory turnover is, why it matters, and how you can use it to navigate the market effectively.

What Exactly is Inventory Turnover in Real Estate?

In simple terms, inventory turnover in real estate measures how quickly homes are selling in a specific market. It tells us how long the current supply of homes would last if no new properties were listed, based on the recent sales pace.  Think of it like this: if you stop restocking shelves in a store, inventory turnover tells you how quickly those shelves will empty based on customer purchases.

In real estate, we often express inventory turnover in "months of supply."  A lower number of months means homes are selling quickly (high turnover), while a higher number indicates homes are lingering on the market longer (low turnover).

How to Calculate Inventory Turnover (Months of Supply)

Calculating inventory turnover is straightforward. You need two key pieces of data for your target area (e.g., Kelowna, specific neighborhood):

  1. Number of Active Listings:  This is the total number of homes currently for sale on the market.
  2. Number of Homes Sold (in a specific period):  Typically, we use the number of homes sold in the last month.

The Formula:

Inventory Turnover (Months of Supply) = Number of Active Listings / Number of Homes Sold (last month)  

Let's look at a couple of case scenarios

Scenario 1: Hot Seller's Market
  • Location:  Downtown Kelowna
  • Date: August 2024
  • Active Listings (as of August 1st, 2024): 150 homes
  • Homes Sold in July 2024: 75 homes

Calculation: Inventory Turnover = 150 / 75 = 2 Months of Supply

Interpretation:  A 2-month supply indicates a strong seller's market. If no new homes came onto the market, the current inventory would be sold in just 2 months at the current sales pace. This means high demand, likely multiple offers, and potentially rising prices.

Scenario 2:  Cooling Buyer's Market
  • Location:  Suburban Kelowna
  • Date: August 2024
  • Active Listings (as of August 1st, 2024): 400 homes
  • Homes Sold in July 2024: 50 homes

Calculation: Inventory Turnover = 400 / 50 = 8 Months of Supply

Interpretation: An 8-month supply points towards a buyer's market or at least a significantly more balanced market. With an 8-month supply, buyers have more choices, less competition, and potentially more negotiating power. Prices might stabilize or even see downward pressure.

Why is Inventory Turnover a Leading Indicator?

Inventory turnover is a leading indicator because it reflects the current balance of supply and demand. Changes in buyer demand or the rate at which new listings come onto the market are quickly reflected in the inventory turnover rate.

  • Early Warning System:  Before price changes become obvious, inventory turnover will often shift first.  A rising months of supply can signal a market cooling down before prices start to drop noticeably. Conversely, a shrinking months of supply can foreshadow price increases.
  • More Responsive than Price:  Price changes are often a lagging indicator.  It takes time for price adjustments to fully reflect market shifts. Inventory turnover reacts more swiftly to changes in buyer and seller behavior.

How Real Estate Agents Can Use Inventory Turnover

For agents at Coldwell Banker Horizon Realty, understanding and tracking inventory turnover is invaluable:

  • Pricing Strategy: In a low inventory market (seller's market), agents can confidently advise sellers to price competitively, potentially even slightly aggressively. In a high inventory market (buyer's market), a more conservative pricing strategy is essential to attract buyers.
  • Buyer Advice:  When inventory is low, agents can prepare buyers for competitive situations, the need for quick decisions, and potentially higher prices. In a high inventory market, agents can advise buyers to take their time, explore options, and negotiate effectively.
  • Market Reports and Client Communication:  Inventory turnover provides concrete data to include in market reports and client communications.  It's a clear, understandable metric that helps illustrate market conditions beyond just "hot" or "cold" descriptions.
  • Identifying Market Trends: By consistently monitoring inventory turnover trends over time (monthly or quarterly), agents can identify shifts early and adapt their business strategies proactively.  Are months of supply consistently increasing? Is it starting to decrease? These trends are key insights.
  • Hyperlocal Market Analysis: Inventory turnover can be calculated for specific neighborhoods, property types, or price ranges, allowing for highly targeted market analysis.  This granular data is incredibly valuable for agents specializing in particular areas.

Stay Ahead of the Curve with Coldwell Banker Horizon Realty

In the dynamic world of real estate, knowledge is power. By understanding and utilizing inventory turnover as a leading indicator, both buyers and sellers can make more informed decisions.

At Coldwell Banker Horizon Realty, we are committed to providing you with the insights and expertise you need to succeed in the Kelowna real estate market. Contact one of our experienced agents today to discuss current inventory turnover in your area of interest and how it impacts your real estate goals.