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The Bidding Wars Are Back

Jonathan Miller writes about the housing economy and other aspects of real estate. He began a real estate blog, the Matrix, in 2005, and has written a column for Curbed.com. He is co-founder of Miller Samuel, a residential real estate appraisal company, and the commercial valuation firm Miller Cicero.
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A relic from the days of the housing boom is making a comeback. The share of sales that feature bidding wars is up. According to the National Association of Realtors, 33 percent of all sales were at or above the asking price, a strong indication that more than one bidder was involved in a transaction. That rate is the highest since 2006.

A big reason for the return of the bidding wars is the lack of housing for sale. From a peak of more than 3.5 million properties offered in 2007, the supply has been cut almost in half. The inventory of housing on the market has been stuck at about 1.8 million properties for the past three years.  

Two big things are holding down inventory: tight credit and low home equity. They are related. Many homeowners with low equity would have a loss or little profit on a sale, meaning they would lack funds for a down payment. That would make it hard for them to qualify for a mortgage on a new home, meaning they stay put and don't list their homes for sale. Meanwhile, the improving economy has spurred demand. The result is higher prices and buyers jousting with one another to make the winning offer. 

Something else is contributing to the bidding wars: the way homes are priced for sale. Since the financial crisis, real estate brokers have pushed sellers to set the asking price closer to the market price. This draws more buyers, who are well aware of the limited supply and what prices the market will bear. In the past, brokers offered less resistance to sellers who wanted to set prices high in hopes of getting lucky. Ironically, a strategy driven by greed often resulted in the seller receiving less than if the home was initially priced close to market value -- buyers and brokers have become wary of unrealistic seller expectations. 

In any event, this much seems likely: Until access to credit eases and rising home values bail out more underwater owners, buyers are probably going to keep running into competition when they try to buy home.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Jonathan J Miller at jmiller@millersamuel.com

To contact the editor on this story:
James Greiff at jgreiff@bloomberg.net