Market Action Index
The Market Action Index (MAI) illustrates the balance between supply and demand using a statistical function of the current rate of sale versus current inventory. An MAI value greater than 30 typically indicates a “Seller’s Market” (a.k.a. “Hot Market”) because demand is high enough to quickly absorb available supply. A hot market will typically cause prices to rise. MAI values below 30 indicate a “Buyer’s Market” (a.k.a. “Cold Market”) where the inventory of already-listed homes is sufficient to last several months at the current rate of sales. A cold market will typically cause prices to fall.
Median Price
The real estate industry generally uses “Median Price” instead of “Average Price” because a couple of high-end or low-end properties in a single zip code or city can skew the Average Price pretty quickly. Using Median (or the midpoint) gives a more accurate depiction of local price levels.
Median Price is often a very good proxy for indicating real-time market activity because sellers in a market, with the help of their local real estate agent, will price their home according to other similar homes in that market. While this isn’t a perfect science, most agents and sellers tend to price their homes in close to the price where it will eventually sell. As the median price changes, this can indicate a couple of key market movements:
- A rise in median price means that sellers are responding to more sales in their local area which means that the local market might be “strengthening” or getting “hotter” – favoring sellers, so they will ask more for their home. A fall in the median price might indicate the opposite – few homes selling at the current price levels which causes homes on the market to drop their price and for new homes on the market to price more aggressively.
- A rise in median price could also mean that homes at the lower part of the market are selling and leaving the market. This means that the remaining homes on the market are at a higher price point, which causes the aggregated median price to rise.
Inventory
“Inventory” is simply real estate lingo for “the number of homes for sale.” This stat shows you how much supply is available in the market you are researching. Inventory levels can ebb and flow frequently due to seasonal effects. There’s usually more inventory on the market in the spring-time as the natural rate of real estate activity picks up during this time of year. Alternately, there’s generally less inventory in the Fall or Winter as real estate activity slows.
This can mean mixed things if you’re a buyer or seller in the market, or a real estate agent working with your clients. At times when there is higher inventory, it means there’s more selection for buyers. But there’s also more buyers in the market in the spring time which means more competition for the homes on the market.
Days on Market
Simply put, “Days-on-Market” tells you how long the active properties currently for sale, in aggregate, have been on the market (a.k.a. “time on market”). Said otherwise- “of the active listings currently available for sale – how long have they been for sale?” Compare this to “Time to sale” which is used to describe only those selected properties that sold and is a statistically different measurement. “Time to sale” only looks at those properties that sold vs “time on market” which looks at all active listings as defined above. Most importantly, while the values of the Altos Research “days on market” and the “time to sale” may not match, you’ll find that these numbers are closely correlated. Both values will rise in weaker markets and fall in stronger markets.
The Days-on-Market number that you see here reflect a “cumulative” number. So what does that mean? Sometimes listing agents will pull a listing from the active market and re-list the property in the near future – maybe a couple of weeks or months down the road. This is a common action for an agent to take if a property has been on the market for an extended period of time or if the property will have its price reduced. Frequently, this also resets the days-on-market number back to “0 days” in the local MLS search. By re-listing the property, it can appear to be “new” in the local market because new buyers in the market may not have seen the property previously. But, that doesn’t really tell you want the true “days-on-market” value is in that market.
To correct for that, we calculate “Days-on-Market” as a cumulative number, which means if a properties leaves the active market and is relisted again within a 90-day period, we assume that they property was never really “off the market” – more like “it was taking a break.” Because local MLS boards have different rules for reporting market statistics and for re-listing properties, using the Altos Research “Days-on-Market” number insures that you are getting a truly consistent and reliable count for “Days-on-market” in your local market area. Additionally, if you are comparing market areas that have different MLS Boards, using the Altos Research “Days-on-Market” allows you to compare markets consistently instead of trying to guess how one MLS area calculates days-on-market vs. another MLS area.
All statistics are presented with a weekly (7-day) number and a 90-day rolling average. Think about the real estate market just like the stock market. In the stock market, there is a quite a lot of volatility – the market goes up and down every day and every week (sometimes rather drastically!). The real estate market can act the same way from week-to-week. Key market statistics such as median price and inventory might change drastically from week-to-week. Because of this, using only weekly market stats (“7-day average”) to analyze the market doesn’t always provide you with the historical context to understand overall market trends. This is why Altos Research also computes the “90-day Rolling Average.”
7-Day Average (not displayed on these charts)
Altos Research collect market data every week to provide our subscribers with a real-time market perspective. Every week, this collected market data is used to update the Altos Charts on our website (and yours) and your Market Reports. These weekly data sets are the 7-day average – the market stats over the past week.
90-day Rolling Average
The 90-day Rolling Average is computed by taking the 7-day market stats collected over the last 90-days, and averaging them out. By averaging the last 90-days, you are able to see a longer historical context for understanding the market trends. The 90-day Rolling Average smooths out weekly “noise” in some statistics and more clearly illustrates trends for observation. This creates a smoother the smoother trend line that you see on the Altos Charts and on the graphs published in your Altos Market Reports.
*Graphical illustrations and data contained on this page provided courtesy of Altos Research.
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