DEFINITION of Unsold Inventory Index
The unsold inventory index represents how long it would take all of the unsold homes currently listed for sale to be sold based on the most recent month's sales rate.
Unsold Inventory Index = Number of homes for sale/Number of homes sold in the most recent month
BREAKING DOWN Unsold Inventory Index
When the unsold inventory index is compared to the average number of sales per month in the recent past, it indicates the pace or velocity of home sales. A rising index number indicates a slowing market, because it is taking longer for homes to sell. Conversely, a declining number means the market is improving, because homes are selling more quickly. The unsold inventory index is watched closely on local, state and national levels as a primary indicator of housing-market health.
Example of Calculating the Unsold Inventory Index
For example, if a market has 100 homes listed for sale, and 10 homes were sold last month, the unsold inventory index would be 10 months. Said another way, assuming no additional homes were added to the market for sale, the expectation is that it would take 10 months to sell all of the current inventory of homes for sale.