As the spring home-buying season gets under way, bidding wars are breaking out on Sacramento's tree-lined streets.
People trying to land a house while prices and interest rates remain relatively low suddenly find few choices – and considerable competition.
There were fewer than 1,100 active home listings in Sacramento County and West Sacramento in February, according to the Sacramento Association of Realtors.
That is less than a month of inventory, meaning it would take that long to sell all the houses. A healthy real estate market has about a six-month supply of homes for sale. Three months or less is considered a seller's market. A month's supply is almost unheard of.
"It's the ultimate seller's market," said Chris Little, president of the local Realtors' association.
The lack of homes on the market is leading to multiple offers, fast sales and offers above the asking price in some of the region's more desirable neighborhoods.
Real estate tracker Zillow estimated this week that area prices rose by more than 15 percent in February compared with the same month a year ago.
It's frustrating for buyers, great for sellers, but unlikely to last, experts said. Eventually supply will catch up and slow the surge in prices.
"I think we'll see a gradual uptick, a natural movement of people, and then hopefully it will continue to build as people feel more confident," Little said.
For now, however, a variety of factors are creating a bottleneck in the supply pipeline. Builders, who have only recently started to ramp up, could take months to get new homes built.
At the same time, more than 150,000 homeowners in the region still owe more on their mortgages than their homes are worth – making it difficult for them to sell without taking a loss. Others are worried about their jobs or finding a replacement house. Many are waiting for prices to rise further.
The number of listings has increased only slightly this month compared with February, said TrendGraphix, a Sacramento-based real estate information service. Yet experts say the supply constraints will gradually ease, adding more homes to the market and curtailing upward pressure on prices.
It's as simple as the law of supply and demand.
"As we elicit more and more supply response, the rate of price increase will moderate. There's no question about that," said Stuart Gabriel, director of the UCLA Ziman Center for Real Estate. But, he added, "I think in the short run, there will be nice upward movement of prices in Sacramento."
Sellers have been finding that out first-hand.
Angie and Ken Deuel listed their South Land Park home on March 15 and received five offers in a week. Some included letters expressing the buyers' fondness for the midcentury ranch house.
The Deuels accepted an offer Friday that was well over the asking price of $417,500, said their agent, Sue Olson of Coldwell Banker.
"This is our fourth house," Angie Deuel said. "I've never experienced the market the way it is right now for a seller. We had so many people through the house. It's just been wonderful."
Cynthia Hearden got three offers in three days for her Land Park home and accepted one that was in excess of her $427,500 asking price. Recently retired, she said she was ready to spend money on something other than home upkeep and is moving to a rental condominium.
"I would much rather go to Paris for three weeks than replace my driveway," she said.
Hearden said she thought about waiting but her agent, Jim Jeffers with Lyon Real Estate, convinced her that the lack of inventory, low interest rates and rising prices made now a good time.
Wait another year, she thought, and inventory could increase and interest rates could rise, mitigating any gains.
Her conclusion: "If I could make enough from the sale of the house now, I don't need to be greedy," she said.
In some ways, the escalating prices and bidding wars look like a rerun of last decade's housing bubble – the kind of unhealthy phenomenon that will only lead to another bust.
That's been the cycle in Sacramento for decades now. But economists insist that's not the case – at least not yet.
Jeffrey Michael, director of the University of the Pacific's Business Forecasting Center, said the current price hike is a correction to prices that fell too low in the housing crash and drove investors to snatch up houses by the hundreds. That buying binge contributed to today's inventory shortage.
Michael said he expects prices to increase another 10 percent to 15 percent in the next year. Eventually investor activity will decrease and the number of listings will increase.
"That should slow the rate of appreciation and give us a more normal market," Michael wrote in an email. "I stress the word SHOULD, since normal real estate markets have been a rarity around here."