Nobody wants to buy at the top of the market. On the other hand, trying to practice market timing in real estate has proven to be almost impossible. Prices nationally are drifting slightly lower, but some markets have already started to strengthen and prices may be rising.
If you aren’t keeping track of what’s going on in your key neighborhoods and price ranges, you are missing one of the biggest real estate stories of 2012, the return of multiple offers and bidding wars.

Let’s set the stage with a simple chart of REO activity in the last 30 days (REO stands for Real Estate Owned by lenders). Reading across the bottom of the chart shows the status of homes and the height of each column shows how many homes are in that status category. For almost all readers, this chart looks perfectly normal…until you realize that in typical times, the active column should be substantially higher. What we are seeing here is a torrid pace of sales that is drawing down the inventory much faster than it is being replenished. The Active and Sold columns are self explanatory, and you can see that they are almost matched. What is not as obvious is that all the other columns could be added to the Sold column since they represent property that is under contract to be sold. Some of the contingent sales will fall out of escrow due to bad inspections, financing that can’t be arranged, personal reasons including loss of job or divorce. Still, a large portion of the contingent sales (and all the pending sales) are going to be added to the Sold column. This simple chart shows that buyers are overwhelming the REO market.

The next chart shows the impact of a surplus of buyers in the market. Each column represents a day of sales and the height of the column shows the relationship of the price paid to the listing price, with the listing price equal to 1.0.

When there are only a few buyers in the market, discounts are common, and it would be normal to see numbers between .85 and .95. As more buyers begin to compete for the smaller inventory of properties, it is much more common to see people paying list price for properties. What this chart shows is that in recent weeks, it is more common than not for buyers to be paying above list price, a practice known as overbidding. What isn’t evident on this chart, or even available as actual data, is that many of these sales had multiple offers from competing bidders. When you’re in the market shopping for homes, the call from the listing agent for you to prepare your “highest and best offer” is a sign that you may have waited too long to get into the market.

The final chart shows that Sonoma County is not universally in a bidding war. Some areas are much more frenzied than others. The bottom of the chart shows selected areas of Sonoma County as defined by the MLS. The set of colums for each city match the sales categories we just looked at for Sonoma County as a whole. The sold column in a dark brown is starkly taller than the active listing column in blue for both northwest and northeast Santa Rosa. Even though those two area show a significant number of new active listings in the last 30 days, the volume of sales, pending sales, and contingent sales is far larger. The southeast quadrant of Santa Rosa may be the only area in the county where inventory actually increased during this 30 day period.

As an agent, I am encouraging all my buyers to start paying serious attention to these market trends. Prices are still very affordable. Interest rates are still at near-record low rates. Just don’t expect to be scoring the record bargains that were avaialable when the competition among buyers didn’t exist.

• Here’s a few insights I want to share:
• The old days of low-ball initial offers are mainly over.
• You can still find bargains.
• Many fixers aren’t drawing the skilled wannabe homeowners who can convert them to charming homes.
• Investors with cash are competing with renters needing loans.
• Entry level homes are often selling for more than list price. If you see a bargain price, it may not be the realistic selling price.

I am going to be fielding questions about this on my Sonoma County Real Estate page on Facebook if you have questions about trends in the neighborhoods and price ranges you care about.