This number tells you how many months it would take for all the current homes for sale on the market to sell, given a monthly sales volume. Four to five months of supply is average. A lower number means that buyers are dominating the market and there are relatively few sellers; a higher number means there are more sellers than buyers.
You can calculate the months of supply by dividing the total number of homes for sale over the number of homes sold in one month. For example, if you search in a neighborhood and notice that there are 30 homes for sale but only 10 homes actually sold last month, it means that there are 3 months of supply left in the market.