Bidding Wars Are Back for Summer

Would-be buyers are finding the housing market more competitive this summer.

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A home under contract in Point Pleasant Beach, N.J.

Bidding wars in this kind of housing market?

It might sound strange given muted reports on home prices and sales, but more and more would-be buyers are finding that house hunting is becoming an increasingly competitive sport these days.

Realtors from San Francisco and Seattle to Boston and Washington, D.C., are reporting multiple offers on properties and quick sales. According to data from real-esate website Redfin, there's been a 73 percent increase in the proportion of properties under contract within two weeks of being put on the market, a far cry from the months homes sat for sale in previous years.

"About one third of the homes now listed in the United States are selling within two weeks of being on the market," says Glenn Kelman, CEO of Redfin. "In places like the San Francisco Bay area, more than half the homes listed are under contract two weeks later."

[See a slideshow of the cities with the fastest shrinking inventories.]

Contrary to what most economists gripe about when they talk about the housing market—a lack of buyer demand—what's ailing these markets is just the opposite. Realtors are clamoring for more properties to sell to willing clients, experts say, but those properties just aren't there.

The number of homes for sale has been dropping across the country since last summer, falling almost 30 percent nationally. Part of that has to do with a seasonal effect—more people tend to buy properties in the spring and summer so they can get their kids settled before school starts—but unlike past seasons, inventory hasn't bounced back.

"Only people that have to sell are selling right now," Kelman says. "The conversation that we're having with buyers right now is the absence of any quality homes to buy."

Experts blame the high level of underwater homeowners, about 11 million Americans, according to some estimates, for part of the inventory problem. Faced with the prospect of having to write a check to the bank at closing, many owners have chosen to hold off on putting their homes on the market or have rented out their properties instead.

[Read: Here's Why the Rich Are Still Renting.]

That dynamic has the potential to draw out the housing recovery, says Eric Belsky, managing director of Harvard University's Joint Center for Housing Studies. If people aren't selling what buyers want to buy, the market stays flat as both buyers and sellers "wait it out."

Still, he says it's a good sign for the housing market.

"It's the right way to think about how the market turns around," Belsky says. "It's about the balance of supply and demand between the inventory of homes for sale and the number of people that want to buy them."

Another reason for lower inventory levels is the increasing frequency of news that home prices are leveling out. If a seller thinks he can get a better price one or two years down the road and has no other pressure to move, it's a no-brainer for many to hang on to their homes a little longer.

[Read: Echo Boomers to Shape Housing Market for Next 2 Decades.]

"When we talk to a seller and we say, 'Your home would sell in a week,' they're saying, 'Yes, but it would sell two years from now for more money,'" Kelman says. "Sales volume is going to continue to be gated by the number of people willing to sell their homes."

Looking forward, Kelman says sales volume will come in fits and starts as inventory ebbs and flows in specific markets, but bidding wars will likely continue to be a fixture in some housing markets this summer. But what's happening on the inside of the housing market isn't as concerning to Kelman as what's happening on the outside.

"The thing that I worry about is just if Europe collapses, it's rare that the American economy doesn't follow it," Kelman says. "In 2008, real estate almost destroyed the global economy. In 2012, the economy could destroy real estate, but it won't be the other way around."

Meg Handley is a business reporter for U.S. News & World Report. You can reach her at mhandley@usnews.com and follow her on Twitter at @mmhandley.