As the Bay Area's prime homebuying season begins, a witches' brew of market forces is making this spring one of the toughest times in memory to purchase a home.
Arrayed against average buyers are fiercely competitive investors and others paying cash on the barrelhead, a scarcity of homes for sale, bidding wars that have run up prices and even problematic appraisals.
"The banks -- they want all cash and they don't really care," said a frustrated Shannon Masse-Winks, who is searching for a home around Berkeley.
The 34-year-old Oakland designer, who is soon to be an architect, said she and her husband Peter began house hunting a year and a half ago.
"We totally got outbid at all times," she said. "The homes were going to people paying all cash. It's very frustrating, and now the prices have gone up about $100,000 since last year at this time. It is awful."
Real estate agents say it's the ultimate sellers' market -- very few sellers and hordes of buyers.
"It's certainly a very frustrating time for Bay Area homebuyers," said Rick Turley, Coldwell Banker's president for the Bay Area.
Many homes that would be purchased in a normal market by average buyers are ending up in the hands of cash-paying absentee owners, typically investors, according to the real estate information company DataQuick. That's especially true of foreclosures and lower-priced homes and condos.
David Yang, 36, who works in solar power, is moving into a home in South San Jose -- the 10th one he bid on in five months of looking. "Every house in a good neighborhood probably will receive 20 to 30 offers," he said. "It's really crazy."
His agent, Sharmila Banerjee, said that "cash is coming from China, India, Russia, but there can be difficulties transferring money from outside the country." When one such deal fell through, another one of her clients had his offer accepted, she said.
In February, 1,044 houses and condos -- 28 percent of the sales -- in the counties of Santa Clara, San Mateo, Alameda and Contra Costa were bought by absentee buyers. That is the highest percentage since DataQuick began tracking them in 2000. In Contra Costa County, absentee buyers were 35 percent of the sales.
Almost a third of all buyers paid cash in those four counties in February, the peak percentage since 1988, the company said.
"In terms of the added frustration to Mr. and Mrs. Typical Homebuyer, the investor coming in with cash is going to trump," said Coldwell Banker's Turley. "Even at the next price tier, you've got these young wealthy millionaires buying their first home at $1.5 million, and they're paying cash. That's edging out the move-up buyer."
Real estate agent Melissa Haugh said everyone in her office was stunned at the price, paid in cash, for a Santa Clara fixer-upper.
"The house had a rat infestation, there were holes in the walls, windows that leaked, mold around windows, water damage to floors. It needed $100,000 in work," she said.
Haugh, of Keller Williams Realty, said she priced the house based on recently sold homes in the neighborhood, including one that was a version of the same home that had been completely remodeled and landscaped. The fixer-upper, listed at $419,000, sold in a week for $629,500.
"We ended with 69 offers, all but five for cash," she said. "It's mostly foreign investors. I've never seen this much cash, ever." The home went to a couple buying the home for their daughter.
"It's horrible for buyers out there," Haugh said. "Regular buyers, who have a good down payment, who want to get into a regular home. It's a little scary. I really do feel it's a bubble. Unlike the bubble before, that was driven by liar loans, this time it's being driven by cash."
Appraisals -- which in the current fast-paced market sometimes have lagged actual sales prices by a month or more -- are one more problem confronting buyers who are borrowing to buy a home because banks won't lend above the appraised price.
Otto Catrina, Castro Valley real estate broker and former president of the Bay East Association of Realtors, said because of that, buyers have stopped making their purchase contingent on the appraisal. "That's how people compete against cash buyers. They'll offer more than the cash bidder, waive the appraisal and show they have the funds to make up the difference," Catrina said.
Another obstacle for some would-be buyers: Those who are paid by commission or who are self-employed may fall outside the credit guidelines of Fannie Mae or Freddie Mac, two government-owned companies that purchase mortgages from banks.
But just because you have cash doesn't mean you can buy a home. First you have to find one for sale, and inventory in the Bay Area remains low.
In a normal market, increasing demand and rising prices would encourage more sellers to put their homes on the market. But that has been slow to occur because home prices fell so low in the crash that many homeowners can still only sell their homes at a loss or for not much gain.
February's median price of $426,500 for existing single family homes in the nine-county Bay Area is up about 22 percent from $350,000 a year earlier, but it's still 42 percent below the peak price of $738,500 reached in July 2007.
Individually, Santa Clara County is 22.4 percent below a July 2007 peak price of $805,500, and Contra Costa and Alameda counties are 53.4 percent and 40 percent below their peak prices, reached between May and July of 2007, according to DataQuick.
"Nobody wants to sell at the bottom," said Jed Kolko, chief economist of Trulia. "Prices bottomed only a year ago, and that means we're still too close to the bottom to see a lot of homeowners putting their houses on the market. And there's a very long way to go to where inventory is back up to normal levels in the Bay Area."
And renting is no solution, said Shannon Masse-Winks, the Oakland designer. "It doesn't make sense to rent," she said. "Rent has been skyrocketing. I think that's really sad. It shouldn't be that only if you are a corporate executive you can live here. That's not what the Bay Area is all about."
Contact Pete Carey at 408-920-5419 Follow him on Twitter.com/petecarey.