People who study the housing market often make predictions about what will happen based on certain stats: average sale price, number of starts (new home construction that has begun), number of closings (home sales that have closed), and housing inventory. Some of these, like home prices, are easy for buyers to understand how it impacts them—low prices mean it’s a good time to buy, and rising prices mean it may be a good idea to buy soon. You can get a great value on a home that will likely be worth more in the near future. But others may be a little more difficult to compute if you aren’t used to looking at housing stats. We’ll break down just the basics of inventory here, and explain why the current low inventory levels mean it’s a great time to buy.

Low inventory means less supply. Do you remember studying economics in high school? A lot of the basics focused on supply and demand. Low inventory means there is less supply—so less homes are available for sale. Those who do market research check the MLS listings and new construction homes that are contracted to be built.

Low inventory indicates a stabilizing housing market.
During market downturns, inventories often skyrocket. Less people are shopping for homes, so the homes that are listed for sale sit on the market for longer. As the market starts to improve, closings (or homes that are sold) begin to outpace starts (or homes that are listed or construction that is begun). When more homes are sold than listed, inventory drops.

Inventories affect home values.
Low supply means more buyers are competing for fewer products. This often means sellers can start to charge more. Less homes are available, so people looking to buy a home may end up competing for the same house, enter bidding wars, and drive the home prices up. This is great for an argument to become a homeowner—your investment value is driven up.

It is best to buy before inventory reaches all-time lows. You’ve heard the term “a buyer’s market”. High inventory is great for homebuyers, since you have more choice of homes, less competition, and motivated sellers. As inventory begins to drop, the market starts to tip in the seller’s favor. Inventory is not currently at all-time low levels, but it is dropping. It is a good idea to buy a home before inventory drops further into the “seller’s market” territory.

Now, the stats: Inventories at the end of 2012 stood at the lowest level in more than 5 years, according to a recent Wall Street Journal article. In fact, the inventory of homes for sale dropped by 17.3% from 2011. These numbers, combined with the low mortgage rates, indicate that now is the time to buy.

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