There’s a buzz in the spring air: sun shining, birdies singing, and buyers buying. And boy, are the buyers buying quickly!

As East Bay agents, we share stories. First we heard of one home in the Berkeleyhills attracting 10 offers; now it’s several homes each week receiving over a dozen offers. One of Red Oak’s listings last week, a 2/1 bungalow priced at $399K, had 40 disclosure packets out and received 16 offers, several of them all-cash. Another Red Oak listing, which was in the $1M+ range and had been on the market for over a year with several price reductions, went from having no offers in December to receiving three offers, all cash, at more than $100K over list. Same agent, same presentation, but a new market.

Most neighborhoods saw prices up quarter to quarter, but not all

But this isn’t just happening in Berkeley. It’s happening in several East Bay neighborhoods. It’s even happening in other parts of the country where just a couple of months ago they were still using the term “glut of inventory.”New York and Boston, Palm Springs and Key West are all on fire.

What’s most striking is how fast buyers ramped up their pace. Here’s why:

INVENTORY: Seasonally low inventory is a big part of the equation, with sellers not being ready with their homes as quickly as the buyers are ready to buy. Oakland, CA just ranked first in a list of nearly 150 metro areas tracking decreases in inventory since the same time last year, with a decrease in inventory of 52%.

INTEREST RATES: There was a slight uptick in interest rates in March. Lulled into feeling that those low rates might last forever, even the small change spurred lots of activity.

CONSUMER CONFIDENCE: An increase in consumer confidence and improved economic conditions are also part of the equation. As San Francisco experiences a new form of tech boom, we in the East Bay benefit from what I call a “trickle over” effect. The sharp rise in rental rates in the City are putting pressure on our East Bay rents, and shifting the buy vs. rent equation in the direction of buy.

INACTION FATIGUE: Basic human nature is in the equation. Buyers have waited for the mythical bottom of the market, waited for the great deals, and many are simply tired of waiting.

VALIDATION: Our manager put it well: “having other buyers write offers on the home you want validates your choice.”

For now, it’s a frustrating time for buyers. It’s difficult to know what would be an appropriate offer if there are many other bidders. During the first quarter anywhere from 18-53% of the homes were selling over their original list prices. Of those selling over, the amount over varied by city and price point, but was within a range of 1-12% over.

Many of the most relevant sales are still pending, but the anecdotes suggest much higher over-bidding in just the past few weeks. Those sales will reset comparable sales even higher. As a colleague rightly pointed out, buyers are not watching the market, they are makingthe market.

There was lots of over-bidding in Q1. How different will this chart look for Q2?

So is this a mini-bubble, a temporary reaction to more buyers being ready than sellers? We saw a somewhat similar heating up of the market in early spring of 2010, but that was clearly a result of the Federal tax credit. Median prices actually dropped in the fall when the credit ended. Will the same happen this fall?

When interest rates inevitably rise, will that reduction in purchasing power lower activity, and perhaps prices as well? It is unlikely that this pace of activity can be sustained.  Once these late March/early April sales have recorded, many more sellers are likely to have the confidence to bring their homes to market. How many of them will then become buyers themselves?

For now, there are more questions than firm answers. But we do know that as in all real estate matters, market definition is hyper local. Not all zip codes are seeing the same buyer demand, and some zip codes could still face additional threat from the remaining inventory of foreclosures. Over the next few weeks I’m going to look at some of my local zip codes to check out what’s happening on a hyperlocal level.

For now, stay above the fray and focus on long-term goals, and if you’re wondering about your zip code, give me a call!

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