What share of your listings receive multiple offers?

  • 90% or more. (69%, 52 Votes)
  • 75%. (11%, 8 Votes)
  • 10% or less. (7%, 5 Votes)
  • 25%. (7%, 5 Votes)
  • 50%. (7%, 5 Votes)

Total Voters: 75

Homebuyers are ready to go to war in 2021, and agents are on the frontlines.

It’s extremely likely your clients’ offers are increasingly facing competition from other offers. As of April 2021, the share of Redfin home offers facing competition was:

  • 83% in San Diego, up from 54% a year earlier;
  • 73% in San Francisco, up from 54% a year earlier;
  • 69% in Sacramento, up from 55% a year earlier; and
  • 64% in Los Angeles, up from 54% a year earlier.

For comparison, 72% of Redfin home offers faced competition nationwide in April 2021. Further, the number of offers on each home has continued to increase rapidly, with many bidding wars including a dozen or more offers on a single home.

The share of offers facing a bidding war was recently lowest in 2019, when bidding wars averaged 10%-15% of home sales in California. Unsurprisingly, this year also saw the lowest home price growth in recent years, with prices keeping pace with inflation but nothing more.

Flash forward to 2021, and bidding wars are no longer the exception, but the rule. Further, California home prices are a significant 15% higher than a year earlier — and climbing.

The root cause of the omnipresence of bidding wars comes back to:

  • still-low interest rates, which have boosted buyer purchasing power, allowing homebuyers to bid more for the same-priced home than, say, a year ago when interest rates were still higher;
  • historically low multiple listing service (MLS) inventory, continuing to decline across the state; and
  • the continuing foreclosure moratorium, which has kept many homes off the market, contributing to the inventory shortage originated by years of insufficient construction.

However, these factors will soon shift.

The rise and the inevitable fall of home prices

Bidding wars are exciting, and they have the tendency to inflate home prices — good things for agents and brokers seeking a pay raise.

But today’s high level of homebuyer competition is also unstable. Whereas before, an agent might write up one or two offers for each homebuyer, now homebuyers find themselves submitting several, even dozens of offers before one is accepted. This is more work for the agent, and more frustration for the homebuyer.

Further, many would-be sellers are less enthusiastic about listing. Sure, with so many eager homebuyers, they will find the process of selling easy. But what if they can’t find a suitable replacement home?

Thus, many homeowners are sitting out the market, choosing instead to wait until things cool down and inventory stabilizes. This lack of sellers worsens the inventory shortage.

Today’s unstable housing market can only be described as a bubble. The fuel for home price increases is running out, to be pulled back by the:

  • waning force of buyer purchasing power, as interest rates have leveled, thus prices will no longer receive the extra boost from falling interest rates; and
  • coming expiration of the foreclosure moratorium, which will cause inventory to rise.

2020’s full stop to foreclosures and plummeting interest rates were momentary market factors, and not sustainable fuel for home prices or home sales volume. Before the housing market can be relied upon to make steady gains — not bubble gains — Californians need to regain the jobs lost to the 2020 recession, and to reach and maintain a healthy level of construction.

While state legislators have focused on increasing residential construction in recent years, California is still at a fraction of what is needed to meet demand from the state’s growing population.

Social distancing and tightened lines of credit continue to hold builders back in 2021. Most importantly, significant job losses have made builders more cautious, watchful for the inevitable fallout once foreclosure and eviction moratoriums are lifted and vacancies rise, to push home prices down. Expect residential construction to remain near today’s low level until around 2024, when the jobs recovery picks up.

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The slowing trend in California construction starts