A new development has been catching home buyers off guard. From Florida to California, many buyers find themselves competing for the same home. Unlike the bidding wars that typified the go-go years and were largely a reflection of surging sales, the current market is a result of supply shortages.
Competitive bidding today isn’t producing huge price increases or leaving sellers with hefty profits, like it did during the housing boom. Still, the bidding wars caused by tight inventory provide the latest evidence that housing demand is beginning to pick up again after a six year slump.
An index measuring the number of contracts signed to purchase previously owned homes increased in March to its highest level in nearly two years, up 12.8 percent from a year ago and 4.1 percent from February, according to the National Association of Realtors.
The chief executive of a research firm, Ivy Zelman said, “We very much believe we’ve hit bottom.” In April, she increased her home-price forecast for the year, calling for a 1 percent annual gain, up from a 1 percent decline.
The quarterly survey by the Wall Street Journal found that the inventory of homes listed for sale declined sharply in all 28 markets tracked. Realtors consider a market balanced when there is a 6-month supply of homes for sale. At the height of the 2008 housing crisis, there was an 11.1-months’ supply. In March, there was a 6.3-months’ supply.
Inventory levels in many housing markets were at the lowest level in years. At the current pace, it would take just 1.5 months to sell all the homes listed in Sacramento and 2.4 months to sell all the homes listed in Phoenix. San Francisco and Washington, D.C., each have 3.4 months of supply, and Miami has 4.1 months of supply.
Other markets have plenty of homes. Chicago, for instance, has 9.4 months of supply, while New York’s Long Island has 16.1 months of supply. Even in those markets though, the number of houses for sale is edging down.
Increased competition is frustrating realtors and their buyers. Many agents say they’re writing a record number of offers but not seeing a record number of closings.
For a number of reasons, inventories are declining. Some sellers, unwilling to accept prices that are still down from their peak by one-third, are taking their homes off the market hoping for higher prices in the future. Meanwhile, investors have been outmaneuvering sellers for the best properties, often making cash offers that they quickly accept.
Additionally, some experts say that inventory levels are being held artificially low because Freddie Mac, Fannie Mae and the country’s largest banks have been slow to list for sale the hundreds of thousands of foreclosed homes they currently own. The lenders slowed down repossessions and foreclosure sales after record-keeping abuses came to the surface about a year and a half ago.
At the end of March, mortgage investors and banks owned nearly 450,000 foreclosed properties, and another two million mortgages were in some stage of foreclosure.
If the banks and other lenders step up their efforts to sell their properties, inventories could increase, putting more pressure on prices. Real estate agents say they aren’t concerned. They see that home buyers are definitely interested in foreclosures. Once the inventory is released, it can’t help but sell, they say.