Real-Time Months Supply vs. Smoothed Months Supply of Inventory (MSI)

Real-Time Months Supply vs. Smoothed Months Supply of Inventory (MSI)

You may have noticed that the Domus MSI often differs from the MSI on other reports, and you're correct.  There's a very good reason for that, and it has to do with differences in calculation methodology.

Domus uses a single month of closed sales to calculate the MSI.

Many other reports divide the number of active listings in a single month by the average monthly sales over the past 12 months to calculate MSI.  We do it different.  We use the number of active sales and the number of closed sales from that same single month to calculate MSI.  We do this because the Months Supply answers a forward-looking question: “If homes continue selling at today’s pace, how long would it take to sell the current inventory?”   Using the most recent month reflects the current pace of demand, and providing the clearest measure of that current pace.

How is this different from using a 12-month average?

While the 12-month method smooths fluctuations, it also blends together different interest rate environments, different pricing conditions, different buyer sentiment, and multiple seasonal cycles.  That can dilute what is happening at any single point in time.

Why is a one month calculation more accurate in changing markets?

Markets do not move evenly throughout the year.  When demand shifts due to rate changes, economic news, policy changes, or local inventory shocks, a 12-month average can lag behind reality.  Using a single month’s sales captures real-time absorption, momentum shifts, demand slowdowns or accelerations, and turning points in the cycle.  In fast-moving markets, this responsiveness matters.

Doesn’t using one month create volatility?

It can create more movement month-to-month. However, that movement reflects real changes in buyer behavior.  Volatility often signals meaningful shifts, while stability from averaging can mask risk or opportunity.  A smoother number is not necessarily a more accurate one.

Which method is better for decision-making?

If the goal is to understand, where the market is heading, whether conditions are tightening or loosening, or how quickly inventory is truly being absorbed, then the most recent month provides a more current and actionable signal.  A 12-month average is backward-looking.  A single month’s pace is forward-looking.

Why does Domus prefer this approach?

Our reporting philosophy prioritizes timeliness, market responsiveness, early detection of trend shifts, and real-world decision support.  By using a single month of sales, Months Supply reflects the market conditions agents and brokers are actively operating in, not an average of conditions over a larger period of time.

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