Real Estate Professionals use “month of inventory” – the number of months it will take to sell the current number of active home listings in a given market—to gauge local conditions
Less than 3 month of inventory.
When the amount of inventory for sale is less than the amount of buyers. As a result you have multiple offers on the same property (bidding wars), and the house prices go up.
Other factors that contribute are low interest rates and house hold income which adds to the affordability factor. Also, the availability of land to build and the amount of immigration.
Over 6 month of inventory.
When you have lots of inventory on the market to choose from and less buyers. Prices can come down.
Other factors that contribute to a buyers market can be higher interest rates, low house hold income which affects the affordability factor. Also, if a builder floods a market with homes which creates a larger inventory.
Balanced Market (neutral market)
3 to 6 month of inventory.
Basically, when there is a balance between the amount of buyers and sellers.