“How’s the market doing?” This question is posed so frequently, I practically hear it in my sleep. Fortunately, it’s an easy and enjoyable one for me to answer. To put it simply: it’s crazy out there.

In Contra Costa and Alameda Counties, pending sales are at their highest level in seven years, just slightly below record highs set in 2004 and 2005. Intrinsically linked, active inventory is at its lowest level in six years.

Our Months Supply of Inventory index sits at an amazingly low 1.45, meaning that if no new homes came to market, we would have none left to sell in less than a month and a half. To put that in perspective: in mid-2008, our local index peaked at over 7 months, while in early 2005 it briefly dipped below 0.5 months.

These conditions have created an extremely strong seller’s market in which prices are rising briskly. But while sellers are all smiles nowadays, many buyers are starting to lose their composure. Buyers are purchasing homes every bit as aggressively, if not more so, than they were in the height of the housing boom in 2005.

There doesn’t appear to be any indication that this trend is going to reverse course anytime soon. The well-documented supply of pre-foreclosure “shadow inventory” simply isn’t making its way to market. It may eventually, but there is no sign that it will happen in the near term, or at the large volume that was previously predicted.

So, barring a miraculous boost in inventory, expect conditions to remain tight and prices to continue rising. How much they will rise and for how long is hard to say. Appraisal contingencies will likely start to put a damper on the rate at which prices rise, especially if things really start to get out of hand. However, there is a healthy percentage of buyers out there with plenty of cash on tap to meet the gap between the appraised value and contract price, so don’t expect it to have too great an impact.

In the mean time, my advice to buyers is to keep a close eye on the market numbers and avoid taking any outlandish actions. Bidding wars can severely affect one’s judgment, resulting in an irrational and unsound purchase decision. Sometimes, keeping your cool and walking away empty handed is not such a bad route. Your home is out there – it just may take some extra time to find it.