Mike Simonsen shows us what’s been happening over the past year to house prices in Oakland and Berkeley:
He puts forward a number of theories why this might be the case, but I think there’s one overarching reason: Berkeley, like Manhattan, is one of the very few areas of the country where marginal house prices are set by what people are willing to pay, rather than what they are able to pay.
In Oakland, as in most of California, a would-be homebuyer goes to a mortgage shop, finds out how much money their lender is willing to extend, and then buys a house for that sum. Right now, the lenders are basically not willing to lend at all, especially if the would-be homebuyer has no downpayment, and that explains why prices have fallen off a cliff.
In Berkeley, by contrast, homebuyers are much less likely to max out their finances on a home purchase. Will they use every last penny of their savings for a downpayment? Will they take the absolute maximum loan that the bank is willing to extend them? Probably not. As a result, I’m sure there have been very few foreclosures in Berkeley, compared to Oakland, even as the demand for Berkeley housing remains unabated.
People who bought in Oakland rather than Berkeley during the housing boom, thinking they were getting a bargain, are now in a very nasty situation should they ever want to move. The old realtor’s saw is being proved true: it really is only location which matters.