Berkeley home prices soar… just don’t call it a bubble

This 3,906-square-foot home at 2914 Piedmont Ave. in Berkeley’s Elmwood neighborhood sold June 17 for $2,425,000 on an asking price of $1,695,000. Photo: Tracey Taylor

This week, a four-bedroom home in Berkeley’s Elmwood neighborhood sold after just three weeks on the market for a staggering $2.4 million, 42% over its asking price of $1.69 million. There were multiple offers on the house. The sale has raised eyebrows both in the neighborhood and among real estate professionals. However it is far from being the only example of escalating home prices in Berkeley and certain nearby areas, a development fueled by an influx of cash buyers falling over themselves to outbid competitors in their determination to snatch up property locally.

“I’ve never seen a market like this,” said Ira Serkes, a Realtor at Pacific Union Real Estate who created the Berkeleyhomes.com website. “The market has changed dramatically.”

“It’s really crazy,” echoed Marlene Leverette, who heads up the East Bay offices of McGuire Real Estate, describing the current real estate climate. “It crept up on us last year, and Realtors are all seeing the same thing: a lack of inventory and lots of cash buyers overbidding on homes by 20-40%.” Leverette said the surge is not restricted to Berkeley. Her colleagues at McGuire offices in San Francisco, the Peninsula and Marin are all telling similar tales. 

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The home that started it all, according to McGuire real estate agent Marlene Leverette: 2620 Piedmont Ave. in Berkeley. Photo: McGuire Real Estate

Leverette recalls registering a shift in the market last July when the 2,700-square-foot home at 2620 Piedmont Ave. in the Elmwood sold for $1,502,000 a few weeks after being listed for $1,195,000. “It all began then,” she said. “It meant we had a new comparable.”

For Serkes, the sale that made him sit up and take notice happened more recently. On May 15, the five-bedroom home at 1551 Hawthorne Terrace in North Berkeley closed escrow at $2.69 million, on an asking price of $1.9 million, after receiving five offers.

Serkes has collated data that show that the median overbid for all sales in Berkeley is currently running at 13% above asking price. For homes selling for $1 million and above, the median is 20% above asking price. Several overbids have been worth over $500,000, he said, as evidenced by the examples cited above.

DJ Grubb, co-owner of The Grubb Company, which focuses on real estate in Piedmont, Berkeley, Oakland and Kensington, said he believes the rush to buy high-end homes in Berkeley is not so much interest rate driven but rather fueled by a new confidence in the economy.

Meanwhile, Joann Sullivan a real estate agent at Thornwall Properties, said buyers have been waiting for a long time to pounce, but that they are no longer willing to wait.

“They have been watching interest rates come down and they are ready now,” she said. (Although interest rates are still historically low, they have ticked upwards in the last month.)

Serkes agrees: “Buyers recognize the prices have turned around and are back on the way up. Buying now means that they’ll get into the home at a better price than in the future.”

The trouble is that the inventory of homes for sale in desirable neighborhoods is limited. Sullivan attributes this to the fact that sellers have also been playing a waiting game — with many of them afraid to list their homes for fear that they would not make back their money on prices paid at the height of the market. The result: rising prices and competition. Sullivan’s office is routinely seeing 12-15 offers on its listed homes.

In addition, a significant proportion of the buyers real estate agents are working with are paying cash. Serkes said that, last year, 38% of his client transactions had all-cash buyers. Sullivan puts the percentage at her office between 25-30%.

Certain buyers are also doing their homework so they can pounce on a coveted home with speed. “Buyers are making cash offers with no financing and no contingencies,” said Leverette. “They read all the disclosures and get all the inspections in ahead so they can move quickly.”

Serkes adds: “When you have the cash you can often pay more and you just want to be settled, so you do.”

2900 Forest Ave. in Berkeley: Sold 24% over its asking price, for $1.8 million, after just 25 days on the market. Photo: Pacific Union International

Many of the $1 million-plus homes that are selling in Berkeley are closing escrow just weeks after the first of perhaps only one or two open-house showings. The 1930s Mediterranean home at 2911 Avalon Ave. in Berkeley’s Claremont Court sold for $2.5 million this week, on an asking price of $2.1 million, after just 40 days. And it took just 25 days for 2900 Forest Ave. to sell on April 30 — for $1,854,000 on a list price of $1,495,000.

Of course this can make life difficult for a potential buyer who is simply looking to buy a home and needs to go through the usual mortgage approval process. Leverette said many of her clients are having to put up to 10 offers on different homes before they succeed in securing one. “It can be hard,” she said.

So who are these cash buyers? Clearly they have funds. They are often young, too. Leverette said she’s seeing Generation Y first-time buyers, many of them working in tech or biotech. She said there is also a lot of Asian money, and buyers coming in from Canada.

Sullivan echoes this view: “There are lots of buyers from the tech world and from the Pacific Rim,” she said, adding that the latter are often looking at properties principally as investments. While most people would say Bay Area home prices are plain silly, they may be less silly to people coming from cities such as Hong Kong or London. Globetrotters who base themselves in the Bay Area but travel all over the world for work are common too.

Grubb said his company is seeing buyers with old family money which has come down the generations. “They are ready to buy now because they don’t like the volatility of the stock market,” he said.

He added that the sales prices we are seeing, while high, do not necessarily represent the high water mark for the value of the market. “After they buy these homes, buyers are investing hundreds of thousands of dollars into them which means their ultimate value is even higher,” he said.

“Just when you thought you had prepared your buyers for escalating prices, here comes another one to break the last record,” said Anthony Riggins, a real estate agent at East Bay Sotheby’s, speaking of this week’s $2.4 million sale on Piedmont Avenue.

But, said the professionals, this is not another bubble. The key difference compared to pre-2008 is that the market is not being buoyed by high-risk loans. “This is not familiar territory,” said Leverette. “There’s often no financing involved at all.”

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2911 Avalon Ave. in Berkeley sold for $2.5 million this week on an asking price of $2.1 million after just 40 days. Photo: Liz Rusby/Grubb Company

Asked which areas he thinks are particularly hot right now, Riggins, who said he is swamped with listings and buyers, pointed to The Uplands, a street in the heart of the Claremont neighborhood. “The power of The Uplands might be the one area in the East Bay where you don’t see the prices stabilizing anytime soon,” he said. “Everyone always mentions [the city of] Piedmont as the most stable market and/or best investment. The sales in The Uplands this year might be proving otherwise.”

In October 2012, 60 The Uplands sold for $1.85 million on a list price of $1.45 million while, the next month, 130 The Uplands fetched $1.379 million on an asking price of $1.089 million.

Leverette cites the Claremont area, Thousands Oaks, North Berkeley as well as Rockridge as being particularly sought-after, while Sullivan mentions Albany — “Prices are way up over there,” she said.

As to what the rest of the year is likely to look like, Serkes said summer is usually a slower time for home sales, but he’s reluctant to make predictions given the current climate. “So many people want to take advantage of the market,” he said. Sullivan, who notes she has had more listings in the past year than ever before, says she expects more inventory to come online. “I certainly hope so,” she said. “It will help stabilize the market.”

Grubb, however, believes there is a “tremendous amount of traction” going forward: “$650 per square foot, which is what we are seeing for high-end homes in Berkeley, is low for the Bay Area. We are just getting started!”

This story was updated following an interview conducted shortly after press time.

Berkeleyside publishes many articles every day. To see all our stories in chronological order, and read ones you may have missed, check out our All the News grid.

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  • Truth Sayer

    Who was that who started blogging with Rumors are…”? :-)

  • EBGuy

    Take this with a grain of salt (as I may not be remembering a conversation I had about a year ago). I don’t think Google runs shuttles up here; however, they do sponsor employee commuter vans (which are, I thought, driven by employees).

  • Dan Woloz

    Lots of RE taxes coming in to city coffers. Berkeley and Oakland take a 1.5% cut of every sale.

  • PragmaticProgressive

    So the kind of house that would be owned by a two professional income family will over the long term end up costing what that kind of couple can afford.

    Have you read or seen speeches by Elizabeth Warren on the Two Income Trap? It’s a sobering look at what happens when people set their consumption levels based on the expectation that they’ll continue to have two incomes.

    In decades past, when people counted on only one income (but occasionally had two), there were basically four possible scenarios:

    two incomes: OK
    income #1: OK
    income #2: OK
    no income: PROBLEM

    If you plan based on having two incomes, the risk gets inverted:

    two incomes: OK
    income #1: PROBLEM
    income #2: PROBLEM
    no income: PROBLEM

    I bought a house that we could afford on one income. Yes, I could have got something more extravagant, but I’m perfectly content and also like the lower risk profile. (These decisions were made before I encountered Warren’s work).

  • PragmaticProgressive

    They run shuttle buses to North Berkeley and Ashby.

  • Deuterium

    I work in technology, in the bay, aswell, for start ups, for HP, and now at another startup, so i know all about options and what they’ve done for folks. I was employee ten at a company that later became Globalcrossing. I could get a million dollar loan but that’s stupid :), and I know of a small group of coworkers that spent all their exercised options on cars and a house. My comment shouldn’t insinuate that I didn’t work in technology or know about a select few that have made millions. My comment was more about the distribution and truth of where the wealth lies.

  • Deuterium

    Btw I appreciate the candid discussion, as this is what makes some of our crazy livesinteresting. ;)

  • guest

    So send only one kid to college.

  • guest

    Berkeley is an academia/tech burg in the delivery room. Soon even the oldest rent controlled units will term out (dead tenants.) The unmet need for student housing will clean up ( consolidate properties) the neighborhoods near campus. And the rest is restaurants, grocery stores and athletic wear shops.

  • guest

    That’s a long way to go for sour grapes.

  • Guest

    You miss the point, completely.

  • guest

    The “point” is risk vs. reward. To some, living in the less extravagant (your word) home isn’t really living at all, it’s a dismal trap.

  • Annie Painter

    I’ve seen the black buses recently, running north on MLK in North Berkeley. Don’t know where they stop.

  • Truth Sayer

    Would it be accurate ro say that you are fortunate due to a venerable owner and/or rent control? I don’t have a full understanding of laws governing rent control. Are rent controls that ironclad where owners can’t creatively skirt the law so that the can obtain higher rent? I have read examples where they have done this, but don’t know the validity of such complaints.

  • whichwitchguest?

    This is getting confusing!

  • Charles_Siegel

    And what should we think of people who have to live in an extravagant home to believe they are living a good life?

  • guest

    YOU should think nothing, nor judge or whatever your self-righteous little self thought when you wrote that comment. In most places, ignorance is bliss. In Berkeley, it’s arrogance.

  • Speculator

    Is it at all possible that the corporate investors buying up large numbers of property are deliberately causing a bubble, the same as they might in buying stocks; they artificially speculate the price up, then sell to another investor at the peak, then there is a rush to sell and the market crashes? You have to speculate to accumulate.

  • gwumpycat

    Are you calling yourself ignorant? Because you are definitely arrogant!

  • gwumpycat

    No.

  • Charles_Siegel

    From today’s Washington Post:

    Prices rose in all 20 cities
    of the Standard & Poor’s Case-Shiller index from a year ago, up
    12.1 percent from April 2012, marking the biggest increase since March
    2006.

    Home prices have been skyrocketing for more than a year because of
    high demand from buyers and a shortage of homes on the market. While
    this month’s rise beat most analysts’ expectations, they do not expect
    the trend to continue.

    “The housing market worm has turned over
    the past few weeks — inventory levels are beginning to show signs of
    easing, and mortgage interest rates are creeping up,” Stan Humphries,
    chief economist at real estate Web site Zillow, said in a statement.

    “Going
    forward, both of these factors will help mitigate extreme price spikes
    caused by very strong housing demand and very low housing supply,” he
    said.

  • gwumpycat

    Are you calling yourself ignorant? Because you seem to be the most arrogant person here.

  • Claw Roofing

    Those are some lovely homes.

    Calgary roofing

  • guest

    Follow you bliss.

  • guest

    Do you own a home?

  • gwumpycat

    Follow you idiot.

  • guest

    You keep making that face, it’s gonna stay that way!

  • Johnny Deep

    You can’t, because you don’t read Chinese news or understand the language.

  • NoHomeofMyOwn

    So if my husband and I make a combined income of $100k and we have $120k for a down payment, how is it that we can’t buy anything east of San Pablo, and south of McBryde (in Richmond)? Definitely a disappearing middle class. Why are people selling to these investors? We lost out to an all cash offer from an investor who is going to rent out the house that I was planning on raising my kids in. When I sold my house, I made it a point not to ruin my neighborhood and sell to an investor. I wanted to sell to a family, and I did. What the hell is going on?

  • me

    I think this is a horrible situation. How can a young family’s afford to live reasonable near where they work?
    We are a young family and I think I make all right money (>120K) but with a baby on the way we know that we wont be able to afford a home here without bringing our financial future into danger.
    How can normal people afford to life here? What are people supposed to do/ commute for 1-2h and getting in car accidents on the way?