What to Expect From the Berkeley Real Estate Market in 2022

The East Bay real estate market saw record-breaking numbers in 2021. Of course, the same thing was said when 2020 closed with a feverish pace, setting up the blockbuster year that followed.

In the second half of 2022, it's a good idea to take stock of where the market currently stands and what you can look forward to on the back end of this year. If early numbers are any indication, 2022 may match or exceed 2021’s historic numbers. Certain market factors may also tap the brakes on what has been an astonishing two-plus year run.

Below is a breakdown of what to expect from the current Berkeley real estate market.

Demand remains high

One of the most significant factors in Berkeley’s recent record-breaking home appreciation is the region’s extraordinary level of demand. This pertains to new homebuyers motivated by insanely low-interest rates and an unusually steady stream of year-round buyers.

For Berkeley, 2021 numbers were astonishing. Median home prices finished the year at $1,585,000—an all-time high—and through the first quarter of 2022, the median price sits at $1,620,000.

Fueling much of this year's early activity, buyers were keen to get ahead of promised interest rates by the Federal Reserve (which they have certainly followed through with). Locking in those favorable mortgages had sellers entertaining multiple offers and pushing overall sale prices higher.

Further compounding the seller’s market, transactions took little time to close. More than 90% of new listings in Berkeley and the surrounding areas went pending or contingent within two weeks of hitting the market. As you head into peak buying season, that timeframe will likely remain the same and become even tighter.

Another factor feeding the need for homes—luxury or otherwise—is the low unemployment rate and the influx of new residents into the East Bay. Current unemployment in Alameda County is 3.2%—a far cry from the 7.2% unemployment last year.

Supply remains desperately low

Unfortunately for buyers, many prospective homeowners currently face a scarcity of inventory. While historically low interest brought hungry buyers into the marketplace, a severe lack of available homes pushed prices higher. This frustrated many buyers, leading to more than a few shocking tales of desperate home shoppers exceeding accepted norms and doing whatever they could to secure a home. However, some of that market insanity is abating.

Interest rates are rising, and buyers are bringing cooler heads to the offer process. But the one constant is a lack of inventory to satisfy an increasing desire for homes. Active listings have increased through the first three months of 2022, reversing the annual downward holiday trend. The uptick, however, is much less than in previous years. Berkeley home inventory hit its lowest three-month total at the end of the first quarter.

Entering April, the Inner Bay's active and coming-soon listing inventory supply was one month. A relatively healthy inventory in a balanced market is approximately six months. A seller's market is half of that, a three-month inventory. Although there are plans for some new housing starts, it won't be enough to impact the woeful lack of housing anytime soon.

Another growing concern is homeowners—who initially planned to list their homes on the seller's market—walking back their plans. Many homeowners choose not to enter the market as buyers, where they will inevitably face the same stiff competition that made their Berkeley home sale so lucrative.

Other sellers are wary of the rapidly increasing mortgage rates. A particular subset includes individuals who bought or refinanced a home when interest rates were below 3%. Any new purchase could result in a considerable swap in equity, even if they sold their current home at a premium. As has been the case for the past two years, interest rates will ultimately dictate where the market goes next.

Rising interest rates and inflation

New homebuyers possessed incredible buying power from mid-2020 to the early months of 2022. Even in the face of skyrocketing residential prices, luxury home purchases were made more accessible by interest rates that hovered between 2.5-3% for 15 consecutive months. Now, however, that power is dwindling.

Over four months, mortgage rates have increased by nearly 70%. Market volatility has returned across numerous sectors, residential real estate among them. Inflation is no longer a remote possibility but a genuine concern that significantly impacts numerous sectors.

At the end of April, the inflation rate was 8.3%. Although that number represents a slight drop from March's 8.5%, the two months combined represented the highest two-month totals since December 1981 (8.9%). However, that percentage came during a rapid drop in the inflation rate. It remains to be seen if April was the start of a trend or just a temporary respite.

Regardless, the current Berkeley real estate market is seeing interest rates and homebuyers bearing the brunt of rising costs. April interest rates hit 4.98%, the highest they've been since November 2018. May rates are poised to close out the 30-day reporting period above 5% for the first time since January 2010.

Shifting priorities

Of course, the most significant difference between now and when mortgage rates were last this high are home prices—a shift within the market is occurring, specifically with the buyer mindset. As buyers must now spend more, they expect more from the purchase process. As noted, you can still expect the best properties in desirable locations to warrant plenty of competition. If you're a seller with this kind of Berkeley home for sale, it remains an excellent time to capitalize on the market. That said, many buyers across all market segments, including luxury Berkeley real estate, are cautious with how they spend their real estate dollars.

In 2022, you can expect fewer stories of 20 or more offers on a single home, sight-unseen bids five figures over asking, or rampant bidding wars over as-is homes, driving prices far above a submarket’s norm. Buyers now expect to get the most for their money and are holding sellers accountable for providing it to them.

From a seller's perspective, to attract what are now more thoughtful buyers, a Berkeley property (at the very least) must be clean and staged, with minor repairs addressed, landscaping well-maintained, and the overall property move-in ready.

Partner with a Berkeley real estate agent

Ultimately, in the absence of catastrophic shifts in the national real estate market, Berkeley's luxury real estate market should remain unchanged for the remainder of 2022. Buyer demand remains high, even as those same buyers demand more from the house they purchase. Sellers remain in an excellent position to reap the rewards of a favorable market—even if a listing requires a little extra work to achieve maximum value from a sale.

For both sides of the real estate transaction, the most important factors are the same as they have always been—regardless of market conditions. Plan ahead, plan according to your needs and financial situation, and establish short- and long-term goals for your real estate needs.

Berkeley real estate will remain an attractive and valuable market with advantages for both parties. To ensure your success, partner with an experienced, local real estate agent who understands the complexities of Berkeley's unique housing market.