Arrival of the Inner East Bay

It’s the strongest real estate market in the Bay Area.

By Patrick Hoge

Photo by Open Homes Photography

Amy Cha and Kyle Van Dieren both had good-paying jobs in the finance department at Uber, the ride-hailing juggernaut, but when they decided to buy a home, they quickly saw that they could not afford what they wanted in San Francisco where they work.

Ultimately, the married couple turned their attention to the East Bay, and after a yearlong search and numerous rejected bids, they paid $940,000 for a century-old duplex on the edge of West Oakland, a longtime lower-income area that Cha likes to think of as part of the increasingly lively Uptown District, which is just across Interstate 980 and is known for its bars, restaurants, historic theaters, and new condo developments.

“We feel like we hit a jackpot because we bought a place that wasn’t completely priced out,” said Cha, who makes the mortgage work by having a tenant downstairs.

Cha loves her quiet street, the short walk to the 19th Street BART station to get to and from work, and the fact that she and her husband can take weekend strolls with their dog for brunch at Hopscotch, a diner in Uptown that serves “seasonally inspired cocktails and regional American food with a Japanese sensibility.”

The more-affordable quality of life Cha has found has increasingly been attracting homebuyers to the Inner East Bay, including many other San Francisco refugees, with the result that median home values have continued to rise across the region even as they flattened or dropped year-over-year in most of the rest of the Bay Area.

“By criteria such as overbidding, days on market, percentage of listings accepting offers, appreciation rates — the Inner East Bay is undoubtedly the strongest major market in the Bay Area right now,” said Patrick Carlisle, Compass Realty’s chief San Francisco Bay Area analyst, who issues regular reports on market conditions.

Though recent months have brought slower increases and even some reversals in some ZIP codes, median house prices in the Inner East Bay area have risen from $728,000 in the third quarter of 2016 to $886,000 in the third quarter of 2019, according to Compass. Median prices for condos similarly rose from $506,000 to $623,000.

Some of the strongest demand was for ZIP codes in easterly parts of East Oakland that included flatlands and low hills; Berkeley’s flatlands from downtown all the way to the bay; all of Alameda Island; Oakland’s Uptown and Civic Center districts; and the Telegraph/Broadway corridors in North Oakland.

All provide relatively easy access to San Francisco via BART, bus, or ferry.

Much of what has happened with prices in the Inner East Bay is the result of people seeking more for their dollars in places as they get priced out of other regions, say real estate analysts.

“Across the broad Bay Area, in many parts, prices have hit an affordability ceiling for buyers. The prices are so infeasible, they can’t make it work, and it’s worth it to them to broaden their search,” said Jeff Tucker, an economist with Zillow.

“We are seeing a high level of migration out of San Francisco into the East Bay. This has accelerated as many buyers are getting priced out of San Francisco,” agreed Aman Daro, the chief operating officer for Red Oak Realty in Oakland.

Another huge factor is the region’s worsening traffic, said Suzanne Masella, a Redfin listing agent with 45 years of experience in East Bay real estate.

“What it all comes down to is the commute,” Masella said. “It used to be schools. Now it’s the commute.”

Between 2010 and 2018, Alameda County was already the fastest-growing county in the nine-county Bay Area on a percentage basis, adding 147,000 residents, for a total of 1.66 million people, according to the Bay Area Council Economic Institute.

The bottom line is there simply are not enough homes in the Inner East Bay to satisfy demand, a function of historically few approvals for housing projects, said Christopher Thornberg of Beacon Economics, which consults for governments around the state, among other clients.

Thornberg said he was glad to see significant new construction recently, especially in Oakland, and that a good deal more has been approved.

“Oakland is finally investing in the housing stock it desperately needs. That’s what for me is the most exciting,” Thornberg said.

Still, Daro said, most of that building is for apartments, and given the existing level of demand, he is not anticipating an effect on home purchase prices.

In fact, Daro contends that there would be no reduction in home prices even if all the housing planned for Inner East Bay cities was actually built — something unlikely given the difficulties developers face in getting approvals and financing and the ups and downs of the economy.

Carlisle believes pressure in the Inner East Bay will increase further as a result of a slew of office towers that are being built or in the planning stages in Oakland, where Shorenstein Properties recently completed a 24-story building, the city’s first office high-rise in more than a decade. Offices don’t directly affect the supply of homes, but they mean new businesses and more people with well-paid jobs wanting to live near where they work. Office development has played a “very significant” role in the San Francisco real estate market over the last five to seven years, Carlisle said.

Before last year, median home values in the Inner East Bay had been cruising upward in tandem with the rest of the Bay Area, albeit at a higher rate, all fueled by the region’s tech boom and low unemployment, according to a Red Oak Realty analysis of sales from the first three-quarters of each year. The data show that from 2012 through September, median home prices in the inner East Bay rose 153 percent.

Then in 2018 many other parts of the Bay Area cooled, though San Francisco continued to rise modestly. Many of the most expensive markets in the Bay Area, particularly surrounding Palo Alto in the heart of Silicon Valley, had median home values decline.

Ken Rosen, chairman of the Fisher Center for Real Estate and Urban Economics at UC Berkeley’s Haas School of Business, said that prices rose so “unsustainably” in Silicon Valley and on the Peninsula in recent years that a dip was to be expected. People all across the Bay Area are having to pay so much of their earnings for housing that further corrections are not unlikely, especially if the region’s tech sector weakens, said Rosen, who expects a tech downturn in the next few years.

“I think this is a peak moment,” he said. “Prices are really very high relative to income.”

There were signs of a softening market in the Inner East Bay as well. Guy Blume of Keller Williams in Alameda said homes that are priced overly aggressively are sitting on the market for longer periods of time, and some owners are making price reductions.

“The only homes selling over price are the truly desirable homes. People are going to continue to fight for those homes,” Blume said. “It just goes to show that the market is shifting, normalizing, not crashing.”

Nevertheless, overall prices paid remain high. Once a sleepy military enclave, Alameda has become a hot commodity for its historic commercial streets, its sprawling single-family homes, good schools, parks, and ferry access to San Francisco. The median home price in the city in November was just over $1 million, up slightly year-over-year for the month, according to Bay East Association of Realtors data.

Two of the Inner East Bay’s most significant median year-over-year jumps for October were in Oakland, according to Zillow. Top of the list was Oakland’s 94602 ZIP code, which includes the Oakmore, Lincoln Highlands, Upper and Lower Dimond, and Upper Peralta Creek neighborhoods. Collectively, they saw values rise 6.5 percent to $963,000.

The next highest jump in Oakland, 5.12 percent, was in the neighboring ZIP code of 94619, which covers from 35th Avenue on the north to Mills College on the south, with Brookdale Avenue on the west and Skyline Boulevard on the east. It includes the Crestmont, Leona Heights, and Redwood Heights areas in the hilly east, and the up-and-coming flatter areas of Laurel, Maxwell Park, and Allendale.

Three of the top five ZIP codes were in Berkeley, 94702, 94703, and 94710, with rises of 5.95 percent, 4.87 percent, and 6.1 percent, respectively, and median home values in October of $1.18 million, $1.01 million, and $962,000, respectively, according to Zillow’s data.

Local real estate professionals said they were not surprised about Berkeley because the city is such a desirable place to live with its vibrant culture and easy access to transportation alternatives. “You have this one section of the Bay Area where check, check, check, it’s got it: schools, atmosphere, quick access. Berkeley is incredible for what it provides,” Schwartz said.

Citywide in October, 64 houses sold in the city with a median sales price of $1.46 million, up 12.27 percent from $1.3 million the same month a year earlier. Five condominiums also sold for a median price of $920,000, up 9.7 percent year-over-year.

All three Berkeley areas were in the flatlands, not in the traditionally tonier hills. Agents said they have seen growing demand, notably among younger people, for homes in more pedestrian-friendly neighborhoods near restaurants, shops, and transit.

“The flats are getting much more interest these days than the hills. People want walkability and access to BART,” said Robin Donovan at Red Oak Realty.

In Oakland, similarly, there was strong demand for housing in up-and-coming parts of the flatlands, stretching from the Berkeley border to 27th Street, with Telegraph Avenue at the center and Broadway and Martin Luther King Jr. Boulevard on the east and west, respectively. The neighborhoods in the area included Upper Telegraph, Bushrod, Temescal, Mosswood, parts of Hoover Foster, Longfellow, and Pill Hill.

Daro of Red Oak Realty said people often start by looking at Rockridge or Berkeley, see the prices, and then start to explore the East Bay’s many other neighborhoods.

The result is people like Cha and Van Dieren turning to traditionally lower-income areas in Oakland, Richmond, East Palo Alto, and San Francisco, where prices rose in the Bayview-Hunters Point, Visitacion Valley, the Excelsior, and lower South of Market.

The spillover effects are evident: Donovan said a Victorian-era duplex she represented in the Santa Fe area near 54th Street and Adeline sold in April for $1.3 million with eight offers. Another aged duplex nearby recently fetched almost the same price, also with eight offers. Even in far West Oakland, a duplex commanded a $1 million sale price.

One major accelerant tossed on the fire, said Michael Schwartz, Compass’s Berkeley/Oakland sales manager, was the steady drop in mortgage interest rates during the year. Thirty-year rates fell from nearly 5 percent in late 2018 to below 3.5 percent in September before rising to nearly 3.7 percent in early December.

The savings and the tax implications are most relevant for the upper-middle-class buyers who are looking for what the Inner East Bay has to offer, Schwartz said. The same is not necessarily true for higher-income people looking at multimillion-dollar homes, he said.

“It’s the lower end that’s still doing really, really well. It’s the entry-level market that’s really strong,” said Masella, the veteran Redfin agent.

Perhaps coincidentally, the only ZIP code in Berkeley to see a year-over-year median value decline was 94705, which includes the affluent Elmwood neighborhood and the Claremont Hotel & Spa area and which had a decrease of 9.41 percent from the prior year, ending with a median home value of almost $1.7 million, according to Zillow (thought agents caution it’s hard to draw conclusions because turnover in the area is so slight).

Where’s next? In Oakland’s far eastern 94605 ZIP code, Molly and Andrés Lara in August bought a 1927 two-bed, one-bath bungalow on 60th Avenue, in an area of older homes just below the Mills College campus. A cute two-bedroom, one bath home nearby was recently listed for $525,000.

Molly, 27, and Andrés, 28, who married a year ago, both work at tech companies in downtown San Francisco, he in sales at a payments company, she managing title partnerships for a real estate venture. Molly previously lived in San Francisco for five years but had moved in with Andrés in an apartment in Daly City when they began looking for a house. They passively looked around in Petaluma and West Marin and worried that they were “completely priced out of the Bay Area.” Then, with the aid of a real estate agent, they focused on El Cerrito and Oakland, where Molly’s father grew up.

One of the things that attracted them to the roughly 1,000 square-foot house they bought was its well-maintained garden for urban farming. The property has a large lot with 12 different fruit trees, including a large avocado tree, and a rainwater catchment system.

“We get more sun here,” Andrés said with a note almost of relief. ”Daly City had great access, but it’s always foggy there.”

They have been thrilled to find that the block has a strong sense of community, something Molly felt was increasingly lacking in San Francisco. Many of the residents on the street have been there for decades, and it’s been fun getting to know them, Molly said.

Some residents speak Spanish, and so does Andrés, which may have helped secure an invitation to a recent goat barbecue featuring a Mexican molé sauce. There was also a salsa dancing night and a recent holiday party.

“So far everyone has been welcoming, accepting and inviting,” Molly said.

When the couple wants to go to restaurants or shops, they hit the hip Laurel district less than a mile away. The Laurel has been revitalized in recent years with new businesses, including some that relocated or branched out from San Francisco.

Another pleasant surprise for the Laras was finding out that the AC transit bus trip to downtown San Francisco is easier and more enjoyable than their old commute driving from Daly City (they can read a book). They even sold one of their cars.

Those are the kinds of urban amenities Cha and Van Dieren used to enjoy when they rented an apartment near San Francisco’s Ghirardelli Square, an area they loved but certainly could not afford to buy into.

Their search for a home covered Marin, the Peninsula, and the South Bay before they turned east because of the culture and sense of place.

“I like the walkability. I like to be able to wake up and walk to coffee shops. I like that it has history,” said Cha, noting the marked variations between the Inner East Bay’s various cities and neighborhoods. “There is so much different culture in close proximity that you don’t really get in the South Bay, where it’s more cookie-cutter suburban.”

During their year of house hunting, Cha said she and her husband flirted with already trendy neighborhoods, like in south Berkeley near the Ashby BART station, near Lake Merritt, and Oakland’s Temescal district, only to find that the competition was too intense: Duplexes priced at around $1 million were going for 30 percent to 50 percent over asking, Cha said.

The 2,100-square-foot house they ended up buying was built in 1900 and they have renovated it while living there. Cha’s husband has become good friends with a neighbor who is a 30-year resident.

Even in their short tenure, Cha said she has already seen the neighborhood change dramatically, becoming “more vibrant,” with numerous houses getting restorations or facelifts and more people on the streets walking dogs or heading to transit for work in the morning.

“It’s changed so much so quickly. For me, it’s for the better,” she said. “Also, I don’t want our neighborhood to lose its charm, but all in all, I think it’s changing for good.”