I've been noticing lots of "new lower price" emails from Zillow; I think the market has cooled off - but how much of it being hot was this investor competition?
I saw quite a few houses that sold a few years prior for much lower prices. The disparity in estimated values and previous sales versus the list price was astronomical in most cases. The banks will happily give you a loan for whatever price so there is no check on the runaway prices except for your own personal knowledge of the historical market demand in an area.
One thing to keep in mind about list prices: if the sellers do a good job of estimating the current market price, then the house will sell quickly. If you're checking listings infrequently, there's going to be some sampling bias in the listings you see; overpriced houses that aren't selling will be disproportionately represented in active listings.