In what seems like just a few months, Oakland’s reputation has transformed from a city plagued by violence into a indie darling. The New York Times rated the city #5 on a list of top cities to visit. Movoto named Oakland the #1 most exciting city in America. The Huffington Post recently published a list of 10 reasons why Oakland has never been better. Now one of the positive attributes Mayor Jean Quan mentioned in her speech at Love Our Lake Day, the city’s affordability, may be in danger.

Driven partly by changing perceptions and partly by a tech boom that is pushing people out of San Francisco, Oakland’s real estate market is turning red hot. Real estate website Trulia.com reports that Oakland’s home sales are up 31% from a year ago. Local realtors America Foy and Remy Weinstein of Highland Partners report seeing “an average of 10 -15 offers on every home that’s priced decently.” Martha Hill of Pacific Union noted that homes regularly sell for 12-15% over the asking price.

 

 

Hill attributes the real estate scramble to Oakland’s recent positive press, combined with a more stable Bay Area job market. “I haven’t talked to anybody in over a year who’s worried about their job or their husband’s job or their partner’s job,” she said.

“It has to do with consumer confidence,” agreed Weinstein. “The media is telling people that it’s not a horrible thing to do anymore. All the people who have been holding off are jumping back in the game.”

It helps that credit is not only cheap, but finally more available to buyers with small down payments or less-than-stellar credit. “For a long time, it was a buyer’s market, meaning that, if you had some money, you could state your price. Cash was really king during that time,” said Foy. “A couple years ago, nobody could borrow money and there was a glut of foreclosed houses on the market.” Foy feels that Oakland’s real estate market is “getting pushed up from the bottom.” He explained that investors, who dominated the market during the foreclosure crisis, now vie with individual homebuyers armed with bank financing. “It’s driving the prices up exponentially because there’s so much competition for so few houses,” said Foy.

Pricing investors out of the market could have a positive impact on Oakland. According to a June 2012 report by the Urban Strategies Council, investors bought 42% of the homes foreclosed in Oakland between 2007 and 2011. Foy noted that, “It used to be common to have a $100,000 flip,” meaning an investor could make a profit of $100,000, often in a few months, by fixing up a house and reselling it.

 

Fewer homes for sale is another factor driving prices up. RealtyTrac counts 2,141 Oakland properties somewhere in the foreclosure process. Still, there were 70% fewer foreclosure sales in May of 2013 than there were a year ago, and both the sales price (up 13%) and the list price (up 23%) are higher than they were last year.  Even the price to buy a foreclosed home has risen 5%.

Hill, Foy and Weinstein agreed on the hottest neighborhoods: Rockridge (where values had remained high), Temescal, Montclair, and North Oakland. “The other area that’s been really hot is Uptown,” added Hill. “All the new [condo] inventory has sold out.”

Foy and Weinstein related the story of a modest 2-bedroom house in Montclair that was placed on the market at $575,000 and sold for $925,000. “It hasn’t been like this for 10 years,” said Foy.

Prices are also going up in neighborhoods where buyers of more modest means retreat after getting priced out of places like North Oakland. “You know that North Oakland is going to be like Temescal in 10 years. West Oakland might take 20 years,” said Hill. “The last frontier in Oakland is Maxwell Park, maybe the Allendale neighborhood. Deep East Oakland is not a part of [the boom].”

Asked whether she thinks Oakland real estate is experiencing another bubble, Hill said, “I so wish I knew.” She added, “The wounds are so fresh from what we just came from. Some of it really does worry me.”

• Can Oakland get more expensive without losing its heart and soul?
• Is the current boom another bubble that will leave Oaklanders flat and foreclosed, once again?

Read Oakland Local’s past coverage on gentrification and let us know what you think.

19 Responses

  1. EG

    We need to make it easier to produce more housing, particularly small-scale DIY market-rate rental housing. It seems like the only buildings we allow are affordable housing developments or luxury condos by well-connected developers. It’s absurd to me that my neighbors are gutting their 2-unit bungalow and turning it into a single family home. Like many other homes, it should be torn down and replaced by a 4-to-8-unit apartment building. If we don’t change our land use regulations to allow for more and denser rental housing, soon Oakland will look like SF–a playland for the few who can afford it with some token affordable housing developments.

    Reply
  2. Len Raphael

    Oakland like all of California has had many real estate booms and busts over the last couple of hundred years.

    The odds are not good that this latest one will survive past this period in which the Federal Reserve has intentionally kept interest rates as close to zero as it could by literally purchasing a trillion dollars of mortgage backed securities over the past couple of years. We’ll know the answer to that over the next 6 months as the Feds reduce their support of low interest rates.

    True that there’s a surprising number of non investors coming up with hundreds of thou of cash to purchase their residences, or at least to put at least the 20% down that’s required to get those low interest rates. Assumedly much of that is from well to do boomer parents and from double income high earning Bay Area tech workers’ savings and stock options.

    There are enough of those buyers to continue to bid up prices in SF, Berkeley, and Piedmont where the schools are excellent and crime is much lower than ours, regardless of interest rate increases.

    Regardless of how frothy this bubble turns out to be, the Oakland City Council has reverted to dot com real estate bubble fiscal mode and give themselves the “flexibility” to spend all the booming real estate transfer tax money that’s rolling in now.

    http://oaklandwiki.org/%22Excess_Real_Estate_Transfer_Tax%22

    http://oaklandwiki.org/Oakland_5_year_official_fiscal_projections

    Reply
  3. Harold Nielson

    Len, I agree with you on the Federal Reserve. You can watch the interest rates go up dramatically over the next several months. Once that happens, you’ll see the real estate market come to a grinding halt again. We have been living on borrowed time for the past several years.
    Harold

    Reply
  4. Chopz

    The nice neighborhoods in east oakland are not exempt from this boom. We bought in upper dimond for $435k 2 years ago, and our house just appraised for $575k! Sure, we’ve made some upgrades, but certainly not $140k worth.

    Reply
  5. Robert Mintz

    Although it seems logical that rising interest rates would act as a drag on housing prices, it’s not clear that is necessarily true. Prices rise and continue to rise as long as buyers and investors believe that an upward trend will continue. Higher rates make houses more expensive to own but that in itself is not a deterrent as long as the dominant belief is that prices will continue to rise and credit is available at some cost. The California real estate booms in the 1970’s, 1980’s began and continued through rising and accelerating interest rates. Fixed rate loans moved from 6% up to 12% and then 16% variable and the buying continued. Buyers bought, despite rising rates because they believed that prices would continue to move strongly higher. In both of those periods, as well as the most recent crash, price increases gradually slowed, began to reverse, and then buyers and owners flooded out of the market as prices accelerated sharply downward.

    Home prices in Oakland (and most of California) are likely to continue to rise, despite rate increases, until the dominant belief in rising prices comes to an end as a result of market conditions that we can’t yet foresee.

    Reply
  6. Spike

    It feels like a lot of those numbers aren’t quite complete- other companies have some significantly varying numbers reflecting more sales. And based on trying to buy a home in Maxwell Park I can guarantee you it’s not the last frontier nor the place resisting the bubble- most of what we bid on or wanted to consider went over $100k above asking. Bubble free?

    Reply
  7. Heather

    I also disagree that Maxwell park is the last bastion, as we live on the far side of Mills College from Maxwell Park, and the market is hot here as well, with houses going for $100K over asking – while that is no comparison to Montclair, for our modest pre-mid-century bungalows, it’s nothing to sneeze at.

    Reply
  8. Max Allstadt

    Is this a fleeting bubble? Or was the fleeting moment actually the pronounced severity of the real estate market crash in Oakland?

    Oakland has tremendous reasons to be valuable. Weather. A central location within a region that has all but runout of property that middle class folks can afford. A boom in downtown that’s spreading to other neighborhoods.

    We also carry tremendous stigma from crime and an incompetent and corrupt government.

    Is it possible that despite all the reasons for Oakland real estate to be highly valued, when the crash came it affected us more because when people panic, they become extremely risk averse, and Oakland’s rewards come with great risk?

    Our crash was also exacerbated by predatory lending and foreclosures, but again, because exploitation was concentrated here in the same way the fear was, is it not reasonable to think that the crash was the anomaly, not the recovery of prices and high demand?

    Reply
  9. The iveywood secret

    I’m so glad hipsters and investors haven’t yet discovered iveywood. While the rest of oakland pays ridiculous prices, we continue to have great access to public transportation, the airport, sports and music venues, walking distance from eastbay parks, redeveloped foothill square, and great amenities of San leandro (great library, coffee shops, grocery stores). The best part of the situation is laughable- our areas reain affordable and we have money left to actual live/enjoy life.

    Reply
  10. Len Raphael

    IVW, next you’re going to tell us about the wonderful public schools in your neighborhood. Though some of the best charter schools do seem to be in East O.

    btw, are Berkeley k-12 public schools as good for wide range of kids as legend has it, or is that just relative to Oakland? or myth?

    Reply
    • The iveywood secret

      Um-is bishop o’dowd up the street from you. Likely not.

      Reply
  11. Laura McCamy

    Thanks for the great comments and information. I’m glad we’re having this discussion!

    Reply
  12. Hamid Grinage

    As a realtor, these times definitely remind me of the bubble that ended in 07. The difference is, there is no more 100% financing and many cash buyers. So if values dip these buyers are not likely to walk away..because they have too much skin in the game. So it seems that Oakland real estate truly does have a solid foundation for long term value.

    Here’s a blog post I wrote about getting offers accepted in a competitive market. http://www.oaklandhomespecialist.com/blog/tips-for-getting-your-offer-accepted-in-a-competitve-market.html

    Reply
  13. len raphael

    Buyers with low or no mortgages are less likely to abandon but those type of buyers can’t sustain real estate values for more than another year at most. Just not enough of them and rents, high as they are, aren’t aren’t high enough to support those house prices.

    Expectations of rises certainly are key but so is affordability. To a certain extent when interest rates rise buyers dig deeper. But with lending standards the toughest in many years, higher interest rates have to mean that selling prices will have to drop unless wages rise.

    I understand why the public employee unions feel the surge in real estate transfer taxes belongs to them, but giving permanent pay increases based on bubbly real estate transfer taxes is risky business in the best of times.

    The 5 year fiscal projections for the city are grim even if you believe the projectionns are millions of dollars too pessimistic on the revenue side.

    If the pubilc employee unions are to get sustainable permanent raises, the money will have to come out of what’s paid to police and fire, and out of grants to non-profits.

    Reply
  14. Redboss

    I’ve been house hunting all over Oakland and have had to bid up to 35% over asking just to be considered viable. Time and time again I have lost out to investers with cash offers. It makes me angry to think half of Oakland housing is owned by iunvestors living somewhere else. I finally found a home for $340K which months earlier sold for $135k! Even so, it appraised over selling priced.

    Reply
  15. Len Raphael

    If there was one lesson to learn from the last real estate bubble, it’s that if it looks like a bubble and walks like a bubble, it’s a bubble. All the rationalizations to the contrary about the Bay Area knowledge economy, limited supply etc., don’t just explain prices in some areas of town that surpass those at the height of the last boom. Now that rates have jumped close to a full point in less than a month, we’ll know within a month what prices and volumes of sales settle down to. But even then, the expectation that interest rates will almost certainly rise to neighbor hood of 6% by end of this year, could result in both a rush to sell and a counteracting rush to buy. So the long term price levels and volumes won’t be known till next spring.

    Budgeting permanent raises for city employees based on current real estate transfer taxes is asking for trouble.

    Reply
  16. Marcus

    I’ve reading this half a year later. The bubble hasn’t burst.

    What nobody is mentioning here is the Math behind everything.

    These prices are justified as the Bay Area’s population has grown. I believe SF had 60,000 new jobs this year and only 120 new housing units….supply and demand.

    What everyone needs to follow is the rental market. As of right now, West Oakland 2 bedroom apt rent for $1,400 to $2,000 per month. What a $2,000 per month mortgage on a 30 yr fixed at 5.50% equates to is about a 380K loan.

    So is it cheaper to buy or to rent? Do the math…as long it is cheaper to buy than to rent…prices will continue to go up on buying till it reaches equilibrium. Once it goes beyond that and we don’t see a rise rental prices…that’s your trigger to sell.

    As for rising interest rates…well the do math.

    Reply

Leave a Reply

Your email address will not be published.