The past year saw the highest sales volume and fastest price increases on record, nationally. We want to take a closer look at this massive buyer demand, and the ways in which it’s affecting the housing market. 

At the start of the pandemic, the housing market looked incredibly unstable: buyers and sellers were pulling out of deals, sales volume and inventory dropped, and unemployment skyrocketed. The uncertainty around the housing market was short-lived, however, and it became clear that homes were going to have a remarkable year.

The sheer number of highly qualified buyers who were entering the market seemed to come out of nowhere, and we were left wondering where all this money had been hiding before the pandemic. As we dug into the data, we saw that the money was out there, but people were simply not spending it. 

The graph below shows the money supply (M2) in the United States and the velocity of money, which measures how much consumers and businesses are spending (higher velocity equates to more spending, and vice versa). When the money supply and velocity increase, we tend to see inflationary periods. As you can see from the chart, however, the money supply increased dramatically (3x) over the last 20 years, while velocity decreased. In other words, more money has not driven the equivalent production of more goods and services, implying that consumers are saving and/or investing. Over the last year, the money supply has increased even more because of COVID-19 relief and the Federal Reserve’s monetary policies, putting even more money in consumers’ pockets. 

Using the S&P 500 and the housing market as examples, we can see the effect that the money supply has had, especially over the last year. The S&P 500 increased around 54% from March 2020 to March 2021, and the Case-Shiller 20-City Home Price Index, which measures the aggregate home prices in the 20 largest metro areas, rose 14%. Stock prices benefit considerably from increased money supply due to their liquidity and fungibility. Home prices rose substantially, especially considering their illiquid nature. Notably, we aren’t seeing a transfer of money out of stocks and into housing; rather, we’re seeing cash going into both asset classes, which means that there is a large amount of money in circulation.

An increase in money supply also tends to lower interest rates. As shown in the chart below, mortgage rates have definitely declined over the last 20 years, and we’re currently hovering at historically low rates, which increases housing affordability despite the rising prices.

We don’t expect the same level of buying in 2021 that we saw in 2020, mostly because of the home undersupply issue. The environment, therefore, is right for demand to outpace supply in 2021. We’ve reached near-perfect conditions for buyers—high credit scores, large down payments, and low-rate financing—so we anticipate a competitive landscape for buyers throughout the year. 

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


Our team is committed to continuing to serve all your real estate needs while incorporating safety protocol to protect all of our loved ones.

In addition, as your local real estate experts, we feel it’s our duty to give you, our valued client, all the information you need to better understand our local real estate market. Whether you’re buying or selling, we want to make sure you have the best, most pertinent information, so we’ve put together this monthly analysis breaking down specifics about the market.

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.

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