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The Big Story

Record highs and lows in the housing market

Quick Take:


Amplified seasonal trends 

Seasonality in the housing market was incredibly steady before the pandemic. Prices typically rose from January to June, when inventory was low but rising, and then flattened from July to December, when inventory was high but declining. In January 2020, homes were already undersupplied, hitting a record low with just over a million homes for sale on the market. When the pandemic hit, demand for homes exploded, dropping inventory to shockingly low levels. During the 18 months between January 2020 and June 2021, inventory declined 49% and prices increased 32%, doubling the total price increase of the previous three years combined. By January 2022, inventory had reached an all-time low, down 60% in the past two years, while home prices reached a record high, up 34%. 

Home sales have only gotten quicker as the market has become more efficient. We can see this trend through the Days on Market and Months of Supply Inventory (MSI). Before the pandemic, homes were already selling more quickly, primarily because of technology and an increasingly competitive market. A more efficient market matches the right people with the right home at a fast pace, causing a drop in supply when new homes aren’t being built. MSI, which quantifies the supply-and-demand relationship, is at a record low, further indicating a sellers’ market. The low supply, high prices, and speed of purchases have shifted homebuyer makeup. 

The number of first-time buyers dropped 6% over the past year, while sales to investors rose 7%. All-cash offers increased significantly, often disproportionately affecting first-time buyers, who are most likely to need financing. With rising mortgage rates, many first-time buyers will once again be hit hardest with higher monthly payments. Rates have already risen, because the Fed is expected to start increasing rates in mid-March, and they will only climb higher. Because of the rising cost, the average age of homebuyers is climbing. The average first-time buyer is now 33 years old, and the average repeat buyer is 56 years old, an all-time high. As we enter a new chapter in the housing market, one characterized by rising rates and very low supply, demand can only go one direction: down. But for now, prices aren’t in danger of declining. 

Over the next several months, we expect supply to matter more than the interest rate hikes when it comes to home prices. Economists anticipate that the Fed will start the first of six incremental 0.25% increases in March. The Fed uses interest rates in particular as a tool to meet its dual mandate of maximum employment and price stability. With inflation at a near-40-year high, prices for most goods are rising while incomes are not. This situation gives the Fed little choice but to raise interest rates. Essentially, when the cost to borrow increases, fewer people want to borrow, leading to less consumer spending (less demand), which lowers prices.

As we enter this new chapter of rising mortgage rates, we don’t expect home prices to decline significantly, if at all, because supply is still such a driving factor. The low supply means that demand can decline without negatively impacting prices. We don’t expect home prices to appreciate at the record level we experienced over the past two years, but we do expect to see an increase. We are still in the middle of one of the strongest sellers’ markets in history. Buyers must come in with fast, competitive offers in this environment.

The Local Lowdown

Quick Take:



Home prices hit record highs in front of Fed rate hikes

Single-family home and condo prices rose to all-time highs in February 2022 with the exception of single-family homes in Los Angeles County, which are just under peak level. Mortgage rate hikes really only lower demand in the long-term, but in the short-term, demand increases as buyers try to lock in a lower rate. The Southern California housing market has a major advantage in that people simply want to live there. Southern California leaves little to be desired, which attracts affluent individuals. This tends to have a snowball effect, making these areas more and more desirable places to live. Despite the huge increases in home prices over the past 12 months, the lack of housing supply will keep prices rising in the year to come.  

The Fed is expected to raise interest rates by 0.25% six times this year, going from 0% to 1.50%. We are now entering a period where factors that affect prices are more mixed, unlike the past two years when all the factors caused prices to increase. Rising interest rates, which will hopefully curb the still-rising inflation, will make homes less affordable and dampen demand over the course of the year. But inventory is so low that even with less demand, the market will likely be undersupplied. It might seem counterintuitive that home prices can still appreciate after increasing so much over the past two years, but with inventory at record lows, home prices in 2022 will still increase — though at a slower rate than in 2021. With high sales relative to the available inventory, we anticipate a competitive market in the year ahead. 

Record-low inventory persists

Southern California, like the rest of the country, has a historically low housing inventory. The sustained high demand and lack of new listings over the past year brought single-family home and condo supplies to record lows across markets. We are seeing that far more people want to live in Southern California than want to leave. Sales have been incredibly high, especially when accounting for available supply, which again highlights demand in the area. Sellers can expect multiple offers, and buyers should come with competitive offers. The incredibly high demand we’ve seen over the past year might wane as interest rates increase; however, the supply is so low that the market can handle a drop in demand without negatively affecting prices. The 30-year average fixed rate mortgage hasn’t climbed above 4% yet, but it almost certainly will as the Fed starts raising rates. If mortgage rates reach 5%, demand will likely decline more substantially. In the next few months, demand will remain high relative to available supply.

Months of Supply Inventory further indicates high demand and low supply

Homes are still selling extremely quickly. Days on Market declined in February, bucking the typical seasonal trend. Buyers must put in competitive offers, which, on average, are at or slightly above 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 that 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 and condo MSIs are exceptionally low, indicating a strong sellers’ 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


The Big Story

Mortgage Rate Hikes Now Definite

Quick Take:


The Fed Dual Mandate

On January 26, 2022, the Federal Reserve (the Fed) indicated that it would raise the federal funds rate as soon as March for the first time in over three years. The Fed adjusts the federal funds rate to influence broader interest rates, which directly affect the borrowing costs of banks. Generally, if bank borrowing costs are low, consumer borrowing costs will be low(er), and vice versa. The Fed uses interest rates in particular as a tool to meet its dual mandate of maximum employment and price stability. Employment and price stability are long-term indicators for home prices. 

We will start with the good news. Employment rebounded considerably from the highest spike in unemployment in modern history in spring 2020 to pre-pandemic levels by December 2021. As you might imagine, high unemployment rates for extended periods lead to less overall wealth: Fewer people buy homes, and more people experience foreclosures, thereby lowering home prices. Although unemployment seemed dire in 2020, employment is now on solid ground. If we view the current record-high 10.5 million job openings, along with the nearly 10 million new businesses created over the past two years, we get a better understanding of why unemployment dropped so significantly despite a record number of job openings. Simply put, people are working, and that is good for individual wealth and the larger economy. 

On to the kind-of-good, kind-of-bad news … rising mortgage rates could help curb inflation and create a more balanced housing market (although 2022 will surely be a sellers’ market), but it will make homes more expensive monthly, hitting first-time homebuyers the hardest. With the federal funds rate at 0% and inflation at a near-40-year high, rate hikes are expected to combat inflation. Essentially, when the cost to borrow increases, fewer people want to borrow, leading to less consumer spending (less demand), which lowers prices. We can look to the last inflationary period, the 1970s, as a loose guide. Inflation today is likely to be much more transitory than it was in the 1970s, but we can still expect a rise in mortgage rates like we saw then. Luckily, however, we will certainly not reach the 18+% mortgage rate that we saw in the early 1980s. As it was then, the Fed is obligated to do something now. While we wish that we could always be in periods of high employment, low inflation, and low interest rates, as we experienced for nearly a decade before the pandemic, we must recognize the atypical nature of that period. 

As we enter this new chapter of rising mortgage rates, we don’t expect home prices to change significantly, if at all, because supply is still such a driving factor. In December 2021, there were 57% fewer homes on the market than in December 2019. The low supply means that demand can decline without affecting prices. Does it matter if 10 offers drop to five? Probably not, and it might even create a better market. Sellers tend to become buyers, so unless you’re a first-time homebuyer, you’ll likely experience both sides of the market. 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. 

We don’t expect price appreciation to see the record gains we experienced over the past two years, but we do expect home prices to increase. Another factor at play over the past two years was a sharp increase in disposable income, which has now normalized. People had more money to spend over the past two years, and we saw that throughout markets: The housing market, the stock market, cryptos, art, jewelry, etc. all reached record high prices. As disposable income has dropped to a more normal level, we can expect assets to appreciate at a more normal pace.

The Local Lowdown

Quick Take:



Home price movements in a rising rate environment

Single-family home and condo prices in Southern California began the year at or near all-time highs. The housing market in Southern California has a major advantage in that a large number of people simply want to live there. Homes in luxury markets are experiencing record demand. In most of the country, we saw price appreciation slow in the second half of 2021, but the sustained record highs highlight the strong demand and desirability of the area. 

Mortgage rate hikes really only move demand in one direction: lower. We are now entering a period during which factors that affect prices are more mixed, unlike the past two years when all the factors caused prices to increase. Rising interest rates, which will hopefully curb the still-rising inflation, will make homes less affordable and dampen demand. But inventory is so low that even with less demand, the market will likely be undersupplied. It might seem counterintuitive that home prices can still appreciate after increasing so much over the past two years, but with inventory at record lows, home prices in 2022 will still increase — though at a slower rate than in 2021.

Record low inventory in Southern California

We entered 2022 with historically low inventory. The sustained high demand and lack of new listings over the past year brought supply to record lows across markets. We are seeing that far more people want to live in Southern California than want to leave. Sales have been incredibly high, especially when accounting for available supply, again highlighting demand in the area. Sellers can expect multiple offers, and buyers should come with competitive offers. The incredibly high demand we’ve seen over the past year might wane as interest rates increase; however, the supply is so low that the market can handle a drop in demand without negatively affecting prices.

Months of Supply Inventory further indicates high demand and low supply

Homes are still selling extremely quickly. Days on Market declined in January, bucking the typical seasonal trend. Buyers must put in competitive offers, which, on average, are at or slightly above list price. 

Months of Supply Inventory (MSI) quantifies the supply/demand relationship by measuring how many months it would take for all current homes 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). In January, MSI remained low in Southern California, indicating a strong sellers’ market. Notably, the January increase in MSI is less instructive than usual — sales slowed because inventory is so low, not because of lack of demand.


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

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