How the Buyer-to-Seller Ratio in Housing is Calculated and What It Means

The buyer-to-seller ratio is a key metric for understanding housing market competitiveness, calculated by comparing the estimated number of active buyers to the number of active sellers. This ratio, derived from MLS (Multiple Listing Service) data and market velocity indicators, provides a snapshot of whether conditions favor those buying or selling a home. A ratio above 1 indicates a seller's market, while a ratio below 1 suggests a buyer's market.

How Is the Number of Sellers Determined?

The starting point for this calculation is straightforward. The number of sellers is simply the total count of active listings—homes officially listed for sale on the local MLS during a specific month. The MLS is a database used by real estate professionals to list and share information about properties for sale. This figure is a direct measure of housing supply.

How Is the Number of Buyers Estimated?

Since there isn't a direct metric tracking active buyers, the number must be estimated. The methodology uses two primary data points:

1. Market Velocity for Listings: This is the fraction of active listings that transition to a pending sale status within a month. It indicates how quickly the available supply is being absorbed.
2. Market Velocity for Buyers: This estimates the fraction of buyers who successfully purchase a home within a month, based on data showing the typical time from a buyer's first home tour to a completed purchase.

The ratio of these two velocity metrics (buyer success rate / seller success rate) approximates the ratio of buyers to sellers in the market. This ratio is then multiplied by the actual number of active listings to arrive at an estimated total number of active buyers. It's important to note this estimate is based on market-wide transaction data, not on the traffic or customer data of any single company.

Why Are the Numbers Seasonally Adjusted?

Real estate activity has predictable seasonal fluctuations; for example, the market is typically more active in spring and summer than in winter. Seasonal adjustment is a statistical process that removes these predictable patterns to reveal the underlying trend. This ensures the buyer-to-seller ratio reflects genuine market conditions rather than just seasonal noise, allowing for more accurate month-to-month comparisons. The table below illustrates the core components used in the calculation.

To effectively use this data:

• Understand the Ratio: A high ratio means more buyers are competing for each home, which can lead to price appreciation and faster sales.
• Look for the Trend: A single month's data is useful, but observing how the ratio changes over several months provides deeper insight into market direction.
• Cite the Source: When referencing this methodology, proper citation is required. For example: Methodology sourced from Redfin.

This analysis aims to measure the balance of power in the housing market at large. Based on our experience assessment, a thorough understanding of how this ratio is derived empowers both buyers and sellers to make more informed decisions by quantifying market dynamics that are often only described anecdotally.