Altos Research has developed a method (the Market Action Index) to quickly evaluate how strong or weak a current market is. The Market Action Index (MAI) illustrates the balance between supply and demand using a statistical function of the current rate of sale versus current inventory. An MAI value greater than 30 typically indicates a “Seller’s Market” (a.k.a. “Hot Market”) because demand is high enough to quickly gobble up available supply. A hot market will typically cause prices to rise. MAI values below 30 indicate a “Buyer’s Market” (a.k.a. “Cold Market”) where the inventory of already-listed homes is sufficient to last several months at the current rate of sales. A cold market will typically cause prices to fall. Residential house prices are a function of supply and demand, and market MARKET ACTION INDEX conditions can be characterized by analyzing those factors. Watch this index for sustained changes: if the index falls into the Buyer’s Market zone for a long period, prices are likely in for a downward correction.
The MAI forSan Carlos and Menlo Park has been between 18 and 25 all year - indicating a buyers’ market for 2008.
The MAI for Palo Alto started above 30 - indicating a sellers’ market - but then dropped below 30 on its way to 20 indicating a buyers’ market even in Palo Alto.
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