Lots of numbers are being thrown around in the media right now regarding Denver’s real estate market. If you had to chose just one metric to watch, we would recommend “months of inventory”.
“Months of Inventory” is a ratio of supply and demand over time. It measures in months how long it would take to sell all of the homes currently on the market, if no other homes came on the market, and if homes sold at the same rate that they had sold during the past 12 months.
It’s a powerful metric because 1) it’s a ratio, not a single measurement, 2) the two numbers that make up the ratio are supply and demand, 3) it takes into account seasonailty by accounting for a 12 month period.
In Denver, 4 to 5 months of inventory represents a balanced market, a market that doesn’t favor the buyer or seller and prices appreciate modestly. Less than four months of inventory represents a seller’s market and results in fast rising prices. More than five months of inventory results in increasing days on market, depreciating prices, etc.
Currently in central Denver, we have 1.5 months of available inventory — strong seller’s market. So while you may read in the newspaper that “Metro Denver home prices drop in February for first time in 7 years”, the fundamentals of supply and demand as represented by months of inventory indicate that prices will continue to appreciate in the near future.