2021 was a record-breaker of a year for East Bay real estate: Berkeley homes reached an all-time high median price of $1,607,500, 14% higher than the year prior. Oakland homes broke their price record by reaching $1,050,000, 16% higher than the previous year.
Although the market calmed in the second half of 2021, at the beginning of 2022 we’re already seeing signs of the same intensely competitive market. The pandemic is not as much of a driving force as it was; instead, we believe there are three main factors leading to what could be a highly active 2022. People looking to buy or sell this year should be aware of these forces and use them to their advantage.
Buyer demand is incredibly strong
Over the past four weeks, Red Oak homes received an average of six offers each, the highest we’ve seen in over a year. Offers came in at an average of 27% over list price, the highest we’ve ever recorded. And 21% of homes received offers of at least $500K over asking, 15 percentage points higher than the same time last year.
Demand is being driven by the Bay Area’s low unemployment rate of 3% and record wage growth, which was tracking at an all-time high of 12% in December. These forces keep buyers looking for homes despite record-high prices in the Inner East Bay.
The Inner East Bay — from West Contra Costa through San Leandro on the western side of the Caldecott — remains one of the most attractive destinations for people looking to leave San Francisco. In addition to all of the lifestyle and cultural attractions, it is still relatively inexpensive to buy here. The median price of a 3-bedroom Berkeley single-family home may seem high at $1,600,000, but it’s relatively low compared to $1,775,000 in San Francisco or $2,315,000 in San Carlos.
Demand usually spikes in the first quarter of each year: that’s because buyers are ready to buy but there is a minimal supply as sellers are still preparing their homes for the spring market. If buyers can do so, they should remain patient and know that more inventory is coming in the next few months.
Last year’s supply bump is gone
In 2021, for the first time in many years, the number of homes for sale actually increased 8%. This was driven by the pandemic and its “great reshuffling”: buyers moved out of San Francisco, and Alameda County became their No. 1 destination. At the same time, most sellers moved out of the East Bay: we found that only 44% of Red Oak sellers stayed in the East Bay, with the majority moving elsewhere in Northern California or to another western state.
But supply is once again low, and there is simply not enough inventory to meet demand. Nevertheless, for people planning on selling this year, limited supply is no guarantee of success. As prices increase, buyers’ expectations are on the rise, too: they want move-in-ready, beautiful homes that are worth the high price that they’re ready to pay. This is why Red Oak introduced Enhance, a service that allows owners to improve a property for sale without paying before close of escrow. All of the improvement and staging work is done by licensed professionals. Properties have thrived under this program, selling further over asking than the market, with more offers and less time on the market. Click here if you have questions.
Mortgage rates are rising
Although there is a lot of talk about all-cash deals, Red Oak has found that more than 85% of transactions use a loan. As a result, most buyers are affected by changes in mortgage rates. This is why it’s important to note that the Federal Reserve has implied it will increase interest rates two-to-three times this year, and as a result, mortgage rates have already started to rise, jumping to 4% in mid-February and exceeding some pundits’ expectations for the entire year. Combined with high inflation rates, which reached 7.5% in January, these factors have already begun to drive down buyers’ purchasing power.
For buyers relying on low interest rates to afford the high cost of an East Bay home, these increases could push them out of the market. That’s why many are rushing to buy now, before rates rise even further. This could also be a key factor to the high level of competition that the market is currently experiencing.
Mortgage rates are still relatively low, but if they rise significantly over the course of the year, this could have a dampening effect on sales and prices.
Taking all of these factors into consideration, buyers and sellers should try to avoid making decisions that are driven by emotion or short-term goals. By keeping long-term goals as the focus, the high price that buyers pay today will likely pay out over time: Inner East Bay prices have risen every year (except three) over the past 24 years. Barring major unforeseen forces, they are likely to continue to rise.
Home Truths is written and sponsored by Red Oak Realty, the largest independent real estate broker 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 email@example.com, 510-250 8780.