Developers seem more optimistic that funding will be available to increase our high-rise rental stock around the Lake.   Let’s just hope that construction costs don’t continue to rise and scuttle these potential deals:

“High-rise development is starting to show signs of life in Oakland for the first time since the Great Recession, with a 298-unit apartment building on the brim of Lake Merritt expected to receive entitlements early next year.

Lake Merritt Boulevard Apartments, set to rise 270 feet on a vacant site on 12th Street and 2nd Avenue, needs the City Council to greenlight a redevelopment plan for the surrounding Lake Merritt BART station area this month in order to skate through environmental review.”

via With Lake Merritt residential tower, highrise development restarts in Oakland – San Francisco Business Times.

Much has been made of the increase in housing costs that will come about when mortgage rates inevitably increase from their historic lows.  What is less discussed, but has been referenced by the Fed more often recently, is how our booming venture capital-backed economy in the Bay Area could suffer if rising rates began to cool the demand for riskier returns.

While I would not choose to be on the opposite side of an argument with Ken Rosen, eloquently referenced in the article below, I currently suspect that any significant increase in rates will be further in the future than currently predicted.  With little to no median wage growth in most of the country, Japan embarking on a massive QE program and a rising dollar – we still have some way to go before the threat of deflation is behind us.

“San Francisco’s economy has been riding high in part because of technology companies’ easy access to capital – gobbling up venture capital dollars and taking advantage of stock gains to buy smaller companies and hire more workers. That employment growth helps feed real estate demand in the city, putting apartment and condo building pace at a peak.”

via Are Republican gains in Congress bad news for the San Francisco real estate market? – San Francisco Business Times.

Now that the City Council has signed off on the West Oakland Specific Plan, which increases the potential amount of land zoned for residential use, will we at last see more viable projects move from entitlement to reality?  The San Francisco Business Times article linked to below is hopeful.

West Oakland Train Station

City Ventures to invest hundreds of millions into West Oakland development

“The on-again, off-again revival of West Oakland is on again.

California infill-housing builder City Ventures is diving deep, with four West Oakland housing and mixed-use parcels in its sights. The private company, which is internally capitalized, expects to invest hundreds of millions of dollars in the neighborhood, Northern California President Philip Kerr said.”

The West Oakland Train Station is at the heart of the specific plan for the neighborhood.

Photo by Spencer Brown

via City Ventures to invest hundreds of millions into West Oakland development – San Francisco Business Times.

For the data-driven like myself, our local MLS’s inclusion of a “Number of Offers” field last year was a very welcome gift.  I’ve since kept tabs on how many bidding wars we’ve been getting ourselves into, and the numbers align with the re-balancing of the market we’ve seen underway.

At our peak, a stunning 45% of the homes offered for sale in Berkeley received more than five offers.  That number has since dropped to 22% for August.  Unsurprisingly, the most active listings were on the lower to mid-range for the area (in Berkeley the average list price to receive the highest number of offers was $759k).

How much did these bidding wars help the Sellers?  Average overbid on my Berkeley sample was a whopping $223k over list price.  I expect the number of bidding wars will continue to decline as the market stabilizes.

Now that our property markets seem to be balancing and the days of double-digit appreciation have subsided, I’ve had many conversations with investors over what the medium-term outlook for the Bay Area could be.

The obvious factors are all in play; interest rates, demographics, supply increases and rising incomes.  One of the hardest to pin down is the inflow of buyers from overseas, which has been increasing mightily over the last two years.

This recent WSJ article does a good job of laying out both the attractions for migration and the scale of the potential; it quotes a recent study finding that 64% of wealthy Chinese had plans to leave and points out why:

To be sure, the departure of China’s brightest and best for study and work isn’t a fresh phenomenon. China’s communist revolution was led, after all, by intellectuals schooled in Europe. What’s new is that they are planning to leave the country in its ascendancy. More and more talented Chinese are looking at the upward trajectory of this emerging superpower and deciding, nevertheless, that they’re better off elsewhere.

The decision to go is often a mix of push and pull. The elite are discovering that they can buy a comfortable lifestyle at surprisingly affordable prices in places such as California and the Australian Gold Coast, while no amount of money can purchase an escape in China from the immense problems afflicting its urban society: pollution, food safety, a broken education system. The new political era of President Xi Jinping, meanwhile, has created as much anxiety as hope.

via The Great Chinese Exodus – WSJ.

That said, one ex-pat I’d been discussing this with reminded me that all of the rules regarding capital controls are still on the books in China.  What remains to be seen is how quickly the PRC could begin to enforce them should they want to stem the tide.

My long-time clients who check in to see how the market is doing will remember that one of the key statistics I watch is growth in the median wage.

A recent article in the Contra Costa Times highlights how well the Bay Area is doing in this regard.  While affordability will begin to dampen further price increases, as our local economy continues to outpace the rest of the nation and interest rates remain historically low, we’ll see a solid floor to our real estate market for the medium term with some upside should inflation begin to pick up – the wild card along the West Coast will be whether the inflow of money from China, India and others continue as investors abroad seek a safe haven for their capital:

Wages and benefits for private industry employees in the Bay Area are rising more quickly than in any other major metro region in the country and twice as fast as the national average, a government survey released Tuesday shows.

“It’s tech. High tech is driving this,” said Christopher Thornberg, founding partner with Beacon Economics. “The Bay Area has one of the strongest economies in the nation.”

Total compensation — measured as the combination of wages, salaries and benefits — for people working in private industry in the nine-county Bay Area rose 4.6 percent over the 12 months that ended in June, the U.S. Bureau of Labor Statistics reported.

via Bay Area wages and benefits rising twice as fast as national average –

Quickly following a recent report that Oakland apartment rents have risen faster than any other city in the Bay Area (including San Jose), it looks like commercial leasing is heading the same direction:

Oakland is in a prime position to attract tech tenants that could be priced out or simply can’t find space in the West Bay, said Bill Cumbelich, a broker with CBRE. Cumbelich mostly concentrated on San Francisco, but is now handling leasing for Oakland office buildings.

In the past, price was the primary reason to defect from San Francisco to the East Bay, but the scenario has changed. Oakland now boasts many of the urban amenities that draw tech tenants to San Francisco: proximity to BART and other public transportation, restaurants and nightlife. On top of that, housing is more affordable.

via Oakland looking more and more like the new SoMa for tech leasing – San Francisco Business Times.

I’ll vouch for the amenities and transportation, but if we don’t create more infill development soon the affordability will be short lived.