Months of Supply Metric is Utter Nonsense

Many Realtors® use a faulty metric in which they divide the number of properties listed on the MLS by the current sales rate to derive months of supply. Intuitively you should be very suspicious of this number. It fails to take human nature into account.

What do sellers do if their property listing has no chance of selling? They remove it from the MLS hoping to relist when prices recover. However, those people still want to unload and those properties are still for sale.

Now, what do speculators do if they realize they overpaid and will never make money on their property? If they’re smart, they stop paying their mortgage [Disclaimer: Miamicondoforum.com and the writer in no way condone or endorse mortgage default]. Again, this property is essentially for sale the moment that person stops paying that mortgage.

Here’s an email I recently received:

“On your website do you have a section where members can sell there condo privately?  I am interested in purchasing a condo in the Miami area but it seems right now when you call a real-estate professional they want to sell you there[sic] condo or there[sic] families or friends.”

Do you think these Realtors® and their family members (all of whom own multiple properties) list on the MLS?

Finally, here’s some simple math for you:

The current housing supply in Miami is something like 38 months, but more importantly, that number has been holding steady and not increasing. Why? Banks don’t list all those foreclosures and realistic speculators are either taking their homes off the market or defaulting on their mortgages. So for all intents and purposes, months of supply is skyrocketing. There’s probably a decade of “shadow inventory”. Does that mean it will take a decade to sell all the properties? No, but it does mean that prices will continue to fall until buying is cheaper than renting - Say’s Law. At that point the supply will drop to reasonable levels.