Houston’s Inventory of single family homes as of October 1 has slipped
slightly lower than where it was September 1. The inventory of homes
measures supply compared to demand and is expressed in months of
inventory. In simple terms Inventory Level is the number of months it
would take to exhaust the inventory, if homes continued to sell at the
current rate and no additional homes entered the market. While a simple
calculation, over years it has provided a quick way to understand the
balance of supply and demand. Most people believe a level of 7 to 8
months is a stable market. Six months or less is considered a Seller’s
market and 9 months or more is a Buyer’s market. The rate of sale used
is normally the previous 12 months of sales.

The period from October to January was affected especially hard from
both the effects of Hurricane Ike and the economic recession. I thought it
would be interesting to measure the Inventory based upon the rate of the
last six months, with the especially slow October to January months not
included. The result is a lower inventory than the Standard Method in all
price ranges. The Six Months Method shows the under $250,000
segment has a significant shortage of inventory with 4.8 months. If this
continues, either sellers who have been waiting to sell will begin to enter
the market or we will begin to see price increase in this segment. Both
may occur.

Shown below is a table showing inventory levels by price range using
both the Standard Method and the Six Month Method. Either method
shows a strong Buyer’s market in homes over $1 million. The rate of sale
for homes from $350,000 to $750,000 has increased edging those
segments closer to stability.

Check back over the next few days as I post inventory levels of key
Close-in neighborhoods.