U.S. home buyers have been engaged in fierce competition for limited inventory with homes flying off the market for nearly a year. In June, for instance, almost two-thirds of offers faced a competing bid. Buyers are making offers well above ask in order to stand out, and some are going so far as to offer sellers extra sweeteners, from cryptocurrency to Caribbean vacations.

Spurred by the pandemic, wealthy buyers are in search of larger properties and more outdoor space; at the same time, inventory is tight due to home construction failing to keep pace with demand and homeowners opting to stay put.

Even in hard-hit Manhattan “‘Covid discounts’ are a thing of the past,” said June Gottlieb, a broker with Warburg Realty in New York. “When we don’t have sufficient replacement of inventory, that puts upward pressure on pricing, and sellers are holding out, so we’re seeing bidding wars.”

Given all the record-breaking indicators—low inventory and time on market, high home prices and bids—many prospective buyers are wondering how long the frenetic pace of the market will last and whether they should wait out this period of intensity.

“Agents are telling us that given the strength of the market, we probably have another 18 months of this. We’re having an inventory shortage in all our U.S. luxury markets, and when that happens, prices continue to go up,” said Scott Durkin, president of Douglas Elliman. “Buyers may have to wait for that long for things to settle down.”

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Historically, real estate markets tend to slow a bit in the summer as buyers go on vacation, but Mr. Durkin said that this doesn’t seem to be the case this year, with closings in cities like Miami up 378% in the second quarter year over year.

“If you have the ability to be flexible as a buyer, that’s a strong asset for you,” said Danielle Hale, chief economist with realtor.com. “Historically, the housing market slows a bit in the late summer and early fall, but last year we did not see a drop off, and the usual events that derail home shopping didn’t happen.” (Mansion Global is owned by Dow Jones. Both Dow Jones and realtor.com are owned by News Corp.)

For buyers who have the ability to sit back and keep an eye on the market rather than jump into the frenzy, it may pay to wait and see if the pace settles down in the coming months. But those attempting to time the market in this way must also weigh the potential risks in doing so.

“You don’t have much to lose by keeping an eye on the market,” Ms. Hale said. “But on a cautionary note, we expect to see mortgage rates going up, so while you may see more options in the future, there’s also that wild card.”

Different markets, different outlooks

Inventory shortages are affecting luxury real estate across the country, and the decision whether to jump in, or to sit back and wait out the fiercest period of competition depends on the market a buyer is considering.

Regions in which construction is underway on new luxury developments are likely to see an easing in competition, and therefore price acceleration, in the near future. Buyers who want to avoid bidding wars in these areas should consider putting their home search on pause until the local housing supply grows.

“We’re seeing a lot of new construction in the Dallas, Austin, and Houston markets, as well as in South Florida, which is one of the strongest markets right now,” Mr. Durkin said. “They’re able to build faster than they can in northern states, and a lot of inventory is coming in Florida in the next 18 months, but some of that is being absorbed already.”

Historically, Ms. Hale said, the late summer is a good time to buy, particularly in mid-September, with inventory often dropping around the winter holidays. And now, many real estate markets are seeing their inventory grow, which bodes well for buyers with the ability to wait a few months. In fact, only eight of the top- 50 markets tracked by realtor.com are seeing a decline in new listings.

“The active listing count remains low because homes aren’t sitting for long. But if you look at the new listing count, there are areas where more sellers are entering the market, particularly in large cities and across the Midwest,” Ms. Hale said. “Our June data show that cities like Milwaukee, San Jose, Washington, D.C., Phoenix, and Philadelphia are at the stage where they’re seeing new listings grow.”

This rise in inventory could mean a slowdown in price acceleration and listing options, giving buyers good reason to wait. But elsewhere, there are indicators that housing prices will only continue to rise, and the best time for buyers to act may be right now.

“If you were outside New York I would suggest you wait, because my feeling is that as the vaccine becomes more pervasive, the need for people to relocate will settle down,” Ms. Gottlieb said. “But New York City is behaving just the opposite. In the second quarter the market was on fire and it’s now totally exploded, so if you want to buy in Manhattan I would do it now.”

Buyers should also keep in mind that there is still plenty of uncertainty around how both sellers and other buyers will behave as the U.S. continues to reopen, and the flux of the past year makes it difficult to identify accurate comps for homes they have their eye on.

“Because of price appreciation, if you sign a deal today, that price might be slightly higher than what comps are showing,” said John Walkup, co-founder of UrbanDigs. “And if you’re waiting, you might see prices continue to go higher because of a lag in sales data, and it’s hard to get insight on contract information to understand if the market is slowing down, so waiting for prices to drop is tricky.”

Opportunity amid the frenzy

During the height of the pandemic, buyers willing to venture out did find some deals. Today, the situation has shifted considerably, and it can be difficult to gauge when price appreciation might settle down again.

“Those people who jumped in during the fourth quarter of 2020 got some great discounts [in New York], but if you’re buying now there’s not as much flexibility in asking price,” Ms. Gottlieb said. “I’d say from here what we are seeing is an upward trajectory, and sellers feeling more confidence in the future of New York.”

However, there are some pockets of relative affordability amid all the frenzy, and buyers who are looking for smaller units or for homes that need upgrading may find that there is less competition and room for negotiation.

“People prefer larger apartments, and the pandemic accentuated that,” Mr. Walkup said. “Demand and price acceleration is a lot faster for larger homes, but if you’re comfortable in a studio or one bedroom, there’s some wiggle room there. Places that need renovation are a bit underappreciated now, too, because prices and timelines for renovations have increased.”

Buyers who can’t wait out the fast-paced market should look, too, for homes that have been listed for three months or longer, as sellers of properties overlooked by other buyers may be more willing to negotiate at this point.

“Don’t go it alone,” Mr. Durkin said. “Have your ducks in order, especially if you’re financing, and be creative with things like contingencies. Your agent needs to prepare you on how to accept the fact that you’ll probably need to make an offer above asking.”

Those who buy now may have to pay above the asking price, but on the bright side, they are also locking in low mortgage interest rates, brokers point out.

Ultimately, buyers should act when they find the right home for themselves and their lifestyles.

“If you are flexible, keep your eyes open and keep looking, the right time for you is when you find a home you like,” Ms. Hale said. “And that way, when trends shift, you’re ready.”

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