Skip to main content

The Big Story

New Year, Same Housing Market

Quick Take:


Will the housing shortage reverse?

By now, you’ve likely run across a headline regarding the large inflation jump we’ve experienced over the past six months. Even if you haven’t, you’ve probably noticed a general increase in prices for things like gas and food over the past couple of months. The last significant long-term inflationary period was in the 1970s when inflation expectations created a feedback loop largely because unions were common and had The driving force behind the substantial price increases over the past two years has been the supply of homes, or lack thereof. So, will the housing shortage reverse? The answer is no, as there is no reasonable scenario that would bring active listings to pre-pandemic norms. Before February 2020, seasonal inventory typically peaked in the summer months, but it was trending slightly lower each year. In 2016, inventory peaked at 1.55 million active listings, and by 2019, the peak fell to 1.35 million homes. Inventory in 2021 reached its highest point at approximately 621,000, a 54% decline over two years. Homebuilders simply cannot build fast enough, especially in sought-after urban areas that have already been developed, and new listings are peaking far lower than the historical seasonal norms. 

At the same time, we are on pace to see around a million more homes sold in 2021 than in a typical year, based on the long-term average. In other words, more homes are selling, despite the historically low inventory, which is further driving down inventory. In 2022, we expect demand to remain elevated and supply depressed, which should keep home prices from depreciating. 

Price appreciation likely will not see the record gains we experienced over the past two years, which is actually good. If we learned one thing from the mid-2000s, we know that we don’t want another housing bubble. The deceleration in price increases, therefore, actually benefits the current market. From a practical standpoint, home prices rising at 20% per year is unsustainable and would certainly cause a major collapse. Moving through 2022, we expect year-over-year price increases to move back to historical norms, in the 5–10% range. 

Fed rate hikes in 2022 could drastically affect appreciation as well, which, again, isn’t a bad thing. The low-cost financing we’ve seen over the past two years could be coming to an end (although it’s difficult not to take a believe-it-when-I-see-it-approach to rate increases). When we account for current inflation, which is the highest it’s been since 1981, the real rate of borrowing is negative if you borrow at a rate below 6.8%. Simply put, you’re getting paid to borrow! We don’t expect this phenomenon to last long — it’s a fairly unique situation.

The market remains competitive for buyers, but 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.

The Local Lowdown

A hot market head

We break down three luxury areas in Los Angeles as follows:

Quick Take:



Home prices still have room to run in 2022

Home prices in the selected luxury markets finished out the year at all-time highs in the West Side and the South Bay, while North Beach dipped slightly below the November peak. It might seem counterintuitive that home prices can still meaningfully appreciate after increasing so much over the past year, but with the inventory at record lows, 2022 will likely be one of the hottest markets we’ve seen. 

In most of the country, we saw price appreciation slow in the second half of the year, but the sustained record highs highlight the strong demand and desirability of the selected markets. With high sales relative to the available inventory, we anticipate a competitive market in the year ahead. 

Record low inventory across markets

Inventory declined significantly in the second half of 2021 due to the sustained high demand and lack of new listings, bringing single-family home supply to historic lows. We are seeing far more high-net-worth buyers in the market than ever before, and that affluence is drawn, unsurprisingly, to Los Angeles. Sales have been incredibly high, especially when accounting for available inventory, again highlighting demand in the area. Sellers can expect multiple offers, and buyers should come with competitive offers.

Months of Supply Inventory further indicates high demand

Homes are selling extremely quickly in these luxury markets. Days on Market is rising slightly, but this is more a function of seasonality than a lack of demand for homes. Buyers must put in competitive offers, which, on average, are 2–10% below list price. 

Months of Supply Inventory (MSI) quantifies the supply/demand relationship by measuring how many months it would take for all current homes for sale on the market to sell at the current rate of sales. The average MSI is three months in California, which indicates a balanced market. An MSI lower than three indicates that there are more buyers than sellers on the market (meaning it’s a sellers’ market), while a higher MSI indicates there are more sellers than buyers (meaning it’s a buyers’ market). Currently, single-family home MSIs are historically low in North Beach and the South Bay, indicating a strong sellers’ market, while West Side MSI implies a balanced market.


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.

– Dominic Pietrangelo, LIC #01860025

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.