Bidding Wars Back but Home Sales Down

CNNMoney reports that in “many” real estate markets bidding wars are cropping up. They tell the story of one couple who lost out on three homes to higher bidders. Then on their fourth try they managed to successfully bid through a real estate agent who “they believe pushed their bid harder in order to double their commission.” Representing both the buyer and the seller in the deal is a common practice, but it’s impossible to prove that either party gets aggressive representation, especially when the agent is doubling their compensation to keep the deal together.

The article calls this couple “lucky,” because inventories of homes for sale continue to shrink around the country. In February, the National Association of Realtors reported a 19.2 percent decline in inventory year-over-year. Though the spring season is expected to bring more listings, inventories are expected to remain well below previously normal levels. The situation is aggravated by the fact that new home construction is moving at a snail’s pace. Current costs to build compared to prices builders can get make it marginally profitable for the risk involved.

Despite bidding wars, the supposedly “recovering” housing market is definitely in a Spring slump. Sales dropped 0.4% in February, a result of fewer homeowners listing for sale and a very low level of new home construction. This drop in sales in February is still a high level as compared to 2010. The National Association of Realtors says that new home construction must rise at least 50% from current levels to begin to have a positive impact.

The rising home values and prices are mostly indicative of this low inventory level and not of a large increase in buyer pressure. Also, home prices could be in an “over-correcting” mode due to the very low levels previously. This rising trend is expected to moderate and become much less steep of a curve to the upside.