Signs of Life From the Real Estate Market

Earlier this year Herson and Liz Enerio put in a $400,000 bid on a four-bedroom house on a private street in Fairfield, Calif., with three pine trees and a backyard that opens onto a hiking trail.

One would think that the 30-year-old police officer and his wife, who works as a nurse, were well positioned to negotiate, especially in a market like Fairfield, a town about 40 miles from both San Francisco and Sacramento where more than 80% of homes for sale are owned by banks or by homeowners facing foreclosure. For one thing, the people selling the home are under water on their mortgage and are trying for a so-called short sale, where the lender agrees to take less than what's owed to prevent a foreclosure. But the Enerios decided to play it safe, bidding $1,000 above the asking price and offering to cover some of the closing costs, because Fairfield—like many of the most battered areas of California, Florida, Nevada, and Arizona—is suddenly hot again.

Prices have dropped so low that cash-ready investors and first-time buyers are making multiple offers on distressed properties. Fairfield sales jumped 226% in the fourth quarter of last year compared to the same quarter in 2007 and home prices during that period fell 19% to $179,500, according to mortgage and housing data analytics company First American CoreLogic. …