In order to understand the magnitude of price movements in 2020, we can look at the Case-Shiller 20-City Home Price Composite Index, the leading measure of residential real estate prices in major metro areas. As you can see from the chart below, we take a 20-year view of the housing market. This allows us to see the cumulative home price movement (purple line) and the rolling 12-month change. 

Until the late 1990s/early 2000s, homes acted as more of a store of value rather than a risk asset, in that home prices generally kept up with inflation. For instance, a home bought 30 years ago would be the same price today after adjusting for inflation pre-2000. In the early 2000s, home prices rallied due to loose lending standards/predatory lending, mismanagement of risk, and negligence of financial institutions, which led to the greatest recession since the Great Depression. 

Home prices took about six years (2006–2012) before they began to meaningfully recover, and the early stages of recovery (2012–2014) were the strongest until 2020. The last time home prices rose as sharply as 2020 was March 2006, which was the time home prices peaked prior to the 2008 financial crisis. To be clear, we aren’t comparing 2006 to 2020 in terms of risk. The housing bubble that occurred between 2004 and 2006 was largely caused by financial institutions. In 2020, homes appreciated because of market factors: a greater number of people saved more than expected, and mortgage rates fell to historic lows. This caused the supply to drop to the lowest level since the National Association of Realtors started recording inventory in 1999. 

Months of Supply Inventory (MSI) indicates how quickly all the current homes for sale would be absorbed if no new homes came to market. In more normal times, MSI usually stands at around five to six months in the United States, and three months in California. The chart below illustrates the precipitous drop in MSI starting after the early months of the pandemic. In the short term, home supply is fixed, so the spike in demand ate up the inventory.

Mortgage rates rose significantly, slightly over 50 basis points, since January 2021. This increase in mortgage rates equates to about a 6.5% rise in the monthly 30-year fixed mortgage cost. Usually, this would hamper demand—which it will—but supply is so low that it won’t matter much from the seller’s point of view. Sellers can still expect multiple offers on their listings. If rates rise another full percentage point, we could see a more dramatic drop in demand. 

Although we don’t expect the same level of buying in 2021 that we saw in 2020, the environment is right for demand to outpace supply in 2021. In the short term, we may even see a demand spike as potential buyers try to purchase before rates rise higher. As a result, we anticipate a competitive landscape for buyers over the course of this year. 

While the market remains competitive for buyers, the market is making it an exceptional time for homeowners to sell. Low inventory means multiple offers and fewer concessions. Because sellers are often selling one home and buying another, it is essential that sellers work with the right agent to ensure the transition goes smoothly. 

Usually, we write these updates to educate our community with current market conditions. As more real estate agents enter the market, however, we also feel it’s prudent to mention the real estate agent surplus that has manifested over the last 12 months. A career in real estate has relatively low barriers to entry; therefore, at a time when unemployment rates are high and the real estate market is hot, we are seeing a large increase in the number of real estate agents. According to the National Association of Realtors, the supply of homes for sale stands at a little over 1 million, while real estate agents number 1.4 million. There exists a clear imbalance here. Like many careers, wisdom gained through experience becomes invaluable. During this unique time, we encourage you to hire an agent who has successfully navigated market cycles and is, therefore, able to best advise you on your buying and selling strategies.


Our team is committed to continuing to serve all your real estate needs while incorporating safety protocol to protect all of our loved ones. As we all navigate this together, please don’t hesitate to reach out to us with any questions or concerns. We’re here to support you.

Let’s Talk

You’ve got questions and we can’t wait to answer them.

We use cookies and tracking technology in connection with your activities on our website. By viewing and using our website, you consent to our use of cookies and tracking technology in accordance with our Privacy Policy.