WSJ: In Chapter 8, we teach that prices are set when the number of buyers (demand) equals the number of sellers (supply). When there are too many sellers (buyers), prices fall (rise). However, it may take a while for prices to "clear" the market.
For condos and single family homes, one measure of whether there are more buyers or sellers is the "months of supply," calculated as the number of units on the market divided by the selling rate. For example, if there are 1 million units on the market, selling at 20,000/month, it would take 5 months to sell the current inventory.
in the second graph, you see the annual price change: prices of condos began falling when supply hit 4 months.
"1 million units on the market, selling at 20,000/month, it would take 5 months to sell the current inventory. " 200,000/month.
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