In looking at trends in the Palo Alto real estate market during the past six months, we see a lot of consistency with little fluctuation across most categories. One area that's made a noticeable shift recently is that of months supply of inventory, or MSI.
Inventory supply rises
The MSI here for August was 1.4. That translates to about 42 days. In July, it was 1.0, and it hasn't climbed above 1.4 since January, when it was 2.2.
Months supply of inventory is a helpful statistic in understanding supply-and-demand trends. MSI tells us how long it would take to deplete the current inventory of homes based on the pace of sales and assuming no new homes were put on the market.
While a 0.4 (40 percent) month-to-month jump in MSI wouldn't raise many eyebrows in cities where the typical MSI is four or five months, in Palo Alto, where inventory levels are very low most of the time, a rise in this stat is significant. This doesn't mean that supply is outstripping demand yet. But it means the market is heading toward an MSI that would reflect a more balanced market, which hasn't been the case here in recent years.
Whether or not supply will keep gaining isn't certain. The 2.2 MSI in January was the highest for any month in more than two years, so it's somewhat of an anomaly. In the six months following January, up through July 2015, the average MSI was 1.03. Compare that with the average MSI of 1.36 between August 2013 and January 2015.
Days on the market lowest in 17 months
In August, the average days on the market (DOM) for sold single-family homes was 12. That's down from 20 in July, but that 20 represented a jump from 13 in June and other "low" numbers prior. If you take the "unusual" July out of the picture, the average DOM for the past five months was 13.8.
To find a figure below 12, you have to go back 17 months to March of 2014, when the DOM averaged eight days.
Recap of August 2015 numbers
• Median sold price: $2,600,000 ($2,602,500 in July)
• Single-family homes sold: 33 (34 in July)
• Properties listed: 70 (73 in July)
As we head into fall and winter, it will be interesting to see the direction our inventory of homes takes. Will the MSI keep rising gradually, or will it head back to 1.0 or below, as we've seen it do eight times since August 2013?