Even as California’s housing market slowed in 2019, some markets remained hyper-competitive for homebuyers.

Half of the nation’s most competitive markets were located in the Bay Area during 2019. These neighborhoods are:

  • White Oaks in San Carlos;
  • Glenview in Oakland;
  • Upper Rockridge in Oakland;
  • Mission Dolores in San Francisco;
  • Bushrod in Oakland;
  • Berkeley Hills in Berkeley;
  • Bay Farm Island in Alameda;
  • Beresford Park in San Mateo;
  • Piedmont Avenue in Oakland; and
  • North Los Altos in Los Altos, according to Redfin.

Redfin measures competition by ranking each neighborhood’s:

  • number of competing offers;
  • number of waived contingencies;
  • days until the typical listing goes under contract; and
  • percentage above listing price the typical listing sells for.

For example, consider the nation’s most competitive neighborhood, White Oaks in the San Jose metro area city of San Carlos. Here, the average home sat on the market for just 12 days and 72% of homes sold above list price, with an average sale-to-list price of 106%.

Half of the state’s most competitive neighborhoods are found in Oakland, notable due to its relatively low cost of living compared to nearby San Francisco and San Jose. Redfin’s analysis names Oakland’s rising popularity as part of the larger trend away from expensive urban areas and into more affordable outlying cities.

Competition for “affordable” homes is a long-term trend in California

Homebuyer competition has been focused in the low tier throughout the long recovery from the last recession, and it continues today. The reason? A heavy supply-and-demand imbalance due to insufficient construction of low-priced homes.

Consistently each year, residential construction remains at a fraction of what is needed to keep up with the growing number of California households. When builders do build, it’s mainly in the high tier, where profits are greatest. Without some sort of government incentive for building affordable housing, it doesn’t make fiscal sense for builders of low-tier housing to invest in purchasing and developing the expensive lots in city centers where the jobs are.

The result is very little low-tier construction. Thus, low-tier homes continue to be the most competitive sector of the market. As of November 2019, the for-sale inventory continued to prove challenging to homebuyers of low-tier homes, with:

  • 42% of available homes in the high tier;
  • 30% of available homes in the mid tier; and
  • 28% of available homes in the low tier, according to data from Zillow.

The low-tier inventory shortage has naturally led to faster price gains in the low tier. The latest price reports have low-tier prices 3% above a year earlier, while mid- and high-tier prices are both 1% above a year earlier in California. While the past 1-2 years have seen modest price gains near to the inflation rate and income growth, this follows a 2015 peak annual price growth of 31% in the low tier and 19% in the high tier.

Sure, the rapid price gains of the past decade have been gratifying for sellers. But many homebuyers have been unable to keep up, especially first-time homebuyers with no home equity to draw upon to support their new home purchase.

Due to their lack of savings and equity, first-time homebuyers are usually relegated to the low tier. But the lack of new construction in the low tier has led to today’s shrunken inventory, and many first-time homebuyers have delayed homeownership, some indefinitely.

For real estate professionals, the issue is clear. Fewer homebuyers able to break into the market means fewer home sales closing, and for agents, fewer fees to go around. Competition is no good if it means qualified homebuyers are shut out of the market.

Agents can get involved in growing their local low-tier inventory by taking part in grass roots efforts. This includes attending city council meetings and voicing approval for more affordable housing in desirable areas. Taking civic action isn’t just the smart thing to do for the health of the local housing market, but it will also boost the active agent’s profile in the community.