Berkeley become one of the hottest real-estate spots in the Bay Area. Photo: Daniel Parks
As home prices have skyrocketed in Berkeley, fewer people can afford to buy here. Photo: Daniel Parks
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Home Truths, a quarterly report on the state of the Berkeley real estate market, is brought to you by Red Oak Realty.

Those of us who live in Berkeley have many reasons to love it: it’s urban yet suburban, offers great schools, and has relatively easy access to water, hills and (if it ever gets cold again) snow.

But these factors only partially explain why real-estate prices in Berkeley have skyrocketed. 2014 was a record-breaker, with median price reaching an all-time high of $884,500. That’s up 9% in one year, 51% in 10. And homes sold an average of 14% over their asking price, the second highest difference in the Bay Area (after Albany).

Median sold price of Berkeley single family homes. Source: Red Oak Realty. [Click to enlarge.]

But there is a downside to this growth: affordability has plummeted. This means that the unique dynamic of Berkeley residents is threatening to change: simply fewer people can afford to buy here.

Housing affordability vs median sale price. Source: Red Oak Realty. [Click to enlarge.]

So why has Berkeley become one of the hottest spots in the Bay Area? There are three factors to consider:

Simply supply and demand

Over the past two years, new listing inventory in Berkeley has plummeted. It is down 10 percent in the past year alone. Why? With prices so high, homeowners are staying put — there’s nowhere to go.

But sales are up 10 percent since 2013, one of two cities in the region experiencing growth (the other is Piedmont). With the decline in supply and rise in demand, it’s no wonder homes are selling at a higher price.

Quantity of Berkeley single family homes. Source: Red Oak Realty. [Click to enlarge.]

No city is an island

When trying to understand Berkeley’s appeal, it’s important to look at the Bay Area as a whole. Berkeley does not exist in a vacuum. For example, 47% of the Bay Area’s 1.3 million employed residents cross over at least one county line to get to work.

Berkeley’s prices are high, but they are relatively low compared to other, attractive cities in the Bay Area. For example, you’ll pay 135% more if you were to buy a three-bedroom home in Palo Alto, 27% more in Mill Valley and 22% more in San Francisco. As more buyers are priced out of other Bay Area cities, Berkeley will continue to be an attractive option.

Three-bedroom single-family-home sale price — similar Bay Area cities, 2014. Source: Red Oak Realty. [Click to enlarge.]

Strong economic factors, but…

The Bay Area offers a unique confluence of forces: a technology and biotech hub, a large creative class, a gateway for Chinese investment, world-class academic institutions, and, last but not least, a stellar climate. This has created rising wages and near-record levels of employment, attracting people from across the U.S. and the globe.

Much of the Bay Area’s growth, especially in the real-estate markets, is driven by venture-capital investment. In fact, investments in San Francisco more than doubled between 2013 and 2014. As San Francisco’s real-estate market continues to tighten, more technology companies are looking to move to the East Bay, which means an increasing focus on the Berkeley residential market.

But beware of over-exuberance, as there are growing concerns in the VC community about high burn rates and reductions in seed money.

These powerful economic factors bring with them conflicting, bittersweet emotions: Berkeley is changing (for better and/or worse), but a new wave of people are able to discover how special this city really is. Let’s just hope it can stay that way.

If you’d like to read a more extensive analysis of the East Bay real estate market, download the complete report here.

Data is sourced from the Multiple Listing Service and analyzed by Red Oak Realty.

Home Truths is written and sponsored by Red Oak Realty, one of the largest independent real estate brokers in the East Bay, serving the community since 1976. Read more in this series. If you are interested in learning more about the local real estate market, or are considering buying or selling a home, contact Red Oak at, tel: 510-250 8780.

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