Are bidding wars here to stay?

WASHINGTON – March 12, 2015 – The housing bubble was known for bidding wars as buyers with a limited number of for-sale homes sent prices soaring over list prices.

Even though the housing meltdown is in the rearview mirror, however, bidding wars have not returned to pre-recession levels. They haven’t disappeared in some markets – and they aren’t likely to go away anytime soon, new research suggests.

Before the housing bubble, about 3 to 4 percent of U.S. homes sold through a bidding war, according to new research published in the journal Real Estate Economics. In the study, researchers evaluated National Association of Realtors® data dating back to the 1980s.

During the peak of the housing bubble, they found, nearly 30 percent of homes in metro Washington, D.C. sold via bidding wars – the highest share of any other metro analyzed. In Los Angeles, 26 percent of homes sold via bidding wars during this time; 23 percent in Las Vegas; and 22 percent in Baltimore and Norfolk, according to the study.

Since the housing crisis, the percentages have dropped considerably, but they remain elevated, according to the analysis.

“The persistence of this suggests that people have decided that this is a good way to think about selling these kinds of goods, selling houses in a more auction-like way,” says William Strange, an economist at the University of Toronto’s Rotman School of Management, and a co-author of the study.

Today’s bidding wars don’t take place in only areas with limited inventories of for-sale homes, researchers note. They suggest that real estate professionals may be strategically listing homes below their value to spur bidding wars.

“With the rise of bidding wars, we shouldn’t think that the housing market – like other markets – is just going to keep doing things in the old traditional ways forever and ever,” Strange told The Washington Post. “There are going to be changes.”

Source: “A Legacy of the Housing Bubble That Won’t Go Away: Bidding Wars,” The Washington Post (March 10, 2015)

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