Bidding wars decline nationally, remain high in California

Intense competition for a small inventory of homes for sale has made bidding wars the norm in 2020-2021. But some good news for U.S. homebuyers: the share of homes receiving more than one offer — resulting in a bidding war — has reached the lowest level in year, dipping just under 60% as of November 2021, according to Redfin.

Bidding wars are still common, but are gradually falling back as buyers become more cautious in the face of overpaying for homes.

On a national level, the share of home sales resulting in a bidding war has decreased from a peak of 75% in spring 2021 to 60% in November. This most recent bidding war data is up slightly from 57% a year earlier.

In contrast, when Redfin began tracking this data in April 2020, the share of home sales resulting in a bidding war was significantly lower, at just 45%.

Fueling these bidding wars are:

mortgage interest rates, which have increased slightly since hitting a record low in January 2021, allowing buyers to extend their purchasing power;
a severe inventory shortage across the U.S. and especially here in California; and
a fear of missing out (FOMO) on behalf of homebuyers who want to improve their lives during the pandemic but are frustrated by the lack of inventory and high competition.

The seasonal home sale pattern typically shows demand dying down towards the end of the year. After a year of pandemic disruption of the seasonal sales cycle, late-2021’s trailing off in bidding wars displays a return to more predictable homebuying patterns. Less demand means (slightly) less competition.

Here in California, the share of home sales resulting in a bidding war remains higher than the national average as of November 2021, at:

72% in San Diego, down from 80% a year earlier;
68% in the Bay Area, down from 69% a year earlier;
68% in Sacramento, up from 64% a year earlier; and
58% in Los Angeles, down from 67% a year earlier.

Sacramento stands out as the exception in a list of declining bidding wars. Sacramento had more bidding wars over a year earlier, related to its lower housing costs. California metros along the coast see more restrictive zoning and thus more expensive housing, resulting in many homebuyers being priced out. The continuation of remote work has also been a major contributor to Sacramento’s rising popularity – allowing homebuyers to move inland to less costly metros.

Employment controls the health of California’s housing market

As homebuyers become more cautious about overpaying for homes, expect to see the breakneck pace of California home prices reverse course in 2022. Already, year-over-year home price increases have begun to narrow in late-2021.

For homebuyers, simply wait, and look ahead for the biggest advantage. True, the winter months see a lull in bidding wars, allowing for buyers to have more financial wiggle room. But the sales volume boost experienced since mid-2020 was temporary and will wane in 2022. The recent end of forbearance programs means more forced sales are expected in the months ahead, causing a rise in inventory and a dip in home prices.

In 2022, expect home prices to fall back, due to:

lower homeowner turnover;
increased home inventory; and
lingering job losses.

The housing market’s recovery is dependent on California’s job recovery. Employment in California has seen gradual improvement following the intense job losses of Spring 2020, but the remaining hangover still leaves a gap in jobs.

While we have recovered over half of the jobs lost, as of November 2021 we are still missing over 700,000 jobs from the pre-recession peak in December 2019. The result is a shift in the housing market’s momentum and reduced competition – expected to occur in 2022-2023.

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