Fall 2022 Market Update



In the past year, homes in the inner East Bay* appreciated 18% and we saw prices climb even higher from January to the June peak (to a median price of $1.45 million). Prices in June were up 16% from 2021 - almost 37% from the 2020 median price - and a whopping 50% from the 2019 median price. The level of exuberance in the real estate market over the past few years has been incredible.

But, what is the one market constant we can all count on? [Let’s say it together…] Just as the market goes up, it also goes down.

With drastic interest rate hikes this year, homes prices have corrected, almost as quickly as they climbed. The median sales price throughout the inner East Bay fell to $1.23 million - that is a 16% decline from the June peak.

But, here’s a bit of perspective. Even with the recent median price drops, the September median price in the inner East Bay is relatively the same as the 2021 median price of $1.25 million….AND the median price is still up 16% from 2020 and 27% from 2019. That’s a lot of appreciation and equity!

As a potential seller, that may not be comforting. Just as it’s hard to imagine liquidating stock when it’s down from its peak, it is also hard to imagine selling your home after you’ve estimated the value in a spring market peak. But, the reality is that it is still a great time to sell for a number of reasons.

Those who have had their home for just a couple of years are already reaping the benefit of appreciation (regardless of whether or not you improved the home in any way). And a home sale is so frequently about more than liquidating an asset - it’s representative of ending one chapter and starting a new one. If you want to move to be close to family, or are ready to downsize and care for a smaller home, or you inherited a home and can’t fathom renting it out…it is still a good time!

Home sellers

If it is time to sell, move forward with realistic expectations in this market. Additionally, position yourself well by considering the realities that buyers are facing today. A little insight and empathy will take you a long way in today’s market.

If you really need to achieve a sales price akin to the June 2022 peak, we recommend you rent your home or stay put. With the incredible equity gains over the past few years and the sky high rental rates, you have options. Just know that the decision to not sell can be the right decision for many sellers, but go into that decision with the understanding that it isn’t a short term plan. It may take several years to get back to the market we just experienced.

Last, if you convert your primary residence to a rental please educate yourself on rental control laws and keep in mind that you may lose the primary residence tax free gains if too much time lapses.

Home buyers

It can be a hard time to be a buyer. You may think that the lower prices are a huge benefit to buyers in today’s market. (“They should be rejoicing in the street!”) But we understand the equation is a little more complicated, especially for buyers reliant on a loan to purchase a home. The cost of borrowing money - interest rates - has made buying even more expensive than it was in the spring.

Most buyers determine their purchase price after calculating their monthly payment. When rates were below 3% monthly payments shrank and buyer budgets grew. A buyer searching for a home in March, with an interest rate of 3%, and a monthly housing budget of $7,000, could afford a purchase price of $1.5 million. That same buyer today, with an interest rate of 6%, can only afford a purchase price of $1.15 million. That is a 23% decrease in a buyer’s purchasing power. Yet prices have only come down 16%.

Buyers are extending themselves more and more to get into our East Bay housing market. They aren’t experiencing any discount or “deals”, in fact quite the opposite. They are ultimately paying more for the same home. Home prices have not come down commiserate with the increase in the cost of borrowing money due to seller expectations. We have seen many homes receive offers in today’s market only for the seller to graciously rejects all offers. And this really shows in the number of home sales in recent months.

The number of monthly home sales throughout the Inner East Bay dropped 29% from June to September. In fact, the number of homes that closed escrow in September was equivalent to the number of home sales we typically see in January of each year (the slowest month of the year). The drastic drop in the number of homes sold has nothing to do with the number of available homes and everything to do with the divide between buyers and sellers.

Moving forward with creativity

What can we do to shrink this divide and best satisfy both buyers and sellers in the market?

Sellers want to net more for their home in order to move forward with selling and buyers need to stay within a monthly payment that is manageable in order to move forward with a purchase. If we can accomplish those two things we can overcome the current divide that has caused our market to come to a relative standstill.

It sounds impossible, right? How do we get more money for sellers AND reduce the cost to buyers. The best tool that we have in our tool belt is the seller buy-down. Let’s explore that option:

If a buyer was prepared to offer $1.2 million with 20% down for a home, their monthly payment would run around $7,200 per month. In that scenario, with no points, the seller’s net sales price would be $1.2m million for their home. Now, if the buyer offered $1.3 million with the seller paying 2 points to buy down the interest rate, the buyer’s monthly payment would instead be around $6,900 per month and the seller would take home the $1.3 million offer price minus approximately $20,000 in points equaling a net sales price of $1.28 million.

That simple restructuring of the offer reduces the buyer’s monthly housing cost by $300 and increases the seller’s net sales price by $80,000. Win-win. Buyers want to create win-win scenarios because if sellers don’t get sales prices that they are willing to accept, more and more will graciously decline offers, resulting in a further decrease in inventory as homeowners pursue other options instead of selling. As inventory goes down, prices go up.

In a market where sellers have other options, creating a win-win scenario will help increase the number of willing-and-able sellers, and allow more buyers to get into homes they can afford.

Sellers are invited to the table to truly negotiate with buyers. They’ll be successful when they are open to offers structured differently than we have seen in the recent past. Above all else, be realistic about what that looks like in today’s market.

* “inner East Bay” is defined as Oakland, Alameda, Berkeley, Emeryville, Albany, Kensington, El Cerrito, and Piedmont