As the housing market approached its peak buying season, a recent trend has prospective homeowners entering fierce bidding wars with one another, The Wall Street Journal reports.
According to the newspaper, this occurrence is typical during months that see a surge in home buying demand, but this time around it is the result of a dwindling home inventory. However, even though buyers are bidding against each other, they are not paying exorbitant sums of money and sellers are not making significant profits. But this trend does indicate that demand is slowly starting to pick up after years of slow activity in the wake of the housing market collapse.
A recent quarterly survey from the Journal found that in the 28 housing markets it monitors, the home inventory has thinned to just a 6.3-month supply. At the peak of the market nearly six years ago, the inventory has an 11.1-month supply.
Inventories shrinking
Some local markets were recognized for their shrinking inventories. For example, at the current sales pace, Sacramento only has a 1.5-month supply, while Phoenix has a 2.4-month inventory. In addition, stronger markets, such as San Francisco and Washington, D.C. each has a 3.4-month supply. As a result of these small inventories, property values in these areas could surge in the coming months. However, some industry experts say that shrinking inventories, resulting in bidding wars, can be frustrating to some buyers.
"We're writing a record number of offers, but we're not seeing a record number of closings and that's because it's so competitive," Redfin chief executive Glenn Kelman told the news source.
To explain the thinning inventories, analysts claim that sellers are unwilling to put their homes on the market since property values have fallen so much since many of them have been purchased. Rather than sell and take a loss, many have chosen to stay put and wait for prices to appreciate.
Remodeling still prevalent
As a result, remodeling activity has been at an elevated level in recent years. During the first quarter this year, the National Association of Home Builders reports that remodeling demand remained stable from the previous three-month period, falling just one point to 47 out of 100.
"Even though many remodelers report that consumers are showing increased interest in remodeling, they are hesitant to act because of financing constraints and the spotty nature of the economic recovery, which so far has failed to reach some of the larger markets in country," said NAHB chief economist David Crowe. "Many consumers are likely to be deferring large remodeling projects until they feel more comfortable with the economic climate in their area."
