(Bloomberg) -- Stacey Smith and her husband looked at about three dozen homes in the San Francisco Bay area and lost a bidding war before finally purchasing a four-bedroom house in June for $1.5 million -- 40 percent more than the asking price.
Their search wasn’t in Silicon Valley or San Francisco. It was just across the bay in Oakland, which has supplanted its pricier and better-known neighbors to become the region’s most heated real estate market.
“Something we had to wrap our head around really quickly was the fact that we were automatically going to bid at least 30 percent over asking,” said Smith, a 50-year-old strategy consultant who moved from San Francisco in search of more space for her family’s three kids. “It’s the new normal."
Oakland’s housing market is still soaring even as growth cools in San Francisco, where million-dollar median home prices have left buyers searching for more affordable alternatives. The East Bay city had California’s highest annual appreciation of home values and the biggest rent growth of the 50 largest U.S. cities as of June, according to data compiled by Zillow.
Despite persistently high crime rates and political turmoil, Oakland is attracting residents for its relative affordability, vibrant cultural scene, diverse population and urban environment within commuting distance to San Francisco. Companies such as Uber Technologies Inc. are moving in -- helping to fuel a 43 percent jump in office rents in two years -- while big investors including Blackstone Group LP and Boston Properties Inc. are putting money into residential projects in the city.
“Oakland is the hottest residential real estate market in the Bay Area,” said Kenneth Rosen, chairman of the Fisher Center for Real Estate and Urban Economics at the University of California, Berkeley. “It’s still expensive, but it’s more affordable” than San Francisco.
Oakland home values soared 16 percent in June from a year earlier to a median $616,300, the biggest gain of California’s major cities, according to Zillow. The median monthly rent jumped 15 percent, the most in the U.S., to $2,846 in the same period. That was almost triple the 5.5 percent growth in San Francisco, and more than five times the nationwide increase.
Houses are selling fast -- and far above list prices. The average home in Oakland sold for 17 percent more than asking in the second quarter, according to data from Paragon Real Estate Group measuring properties that didn’t go through a price reduction first. That compared with 9 percent for San Francisco and 5 percent in Silicon Valley’s Santa Clara and San Mateo counties. Oakland homes were on the market an average of 20 days, fewer than the 34 days in San Francisco.
“Most markets would be pleased if they averaged asking price, or 1 or 2 percent over asking price,” said Patrick Carlisle, chief market analyst at Paragon. “To see things averaging 9 to 17 percent over asking price is virtually unheard of. It’s the highest I’ve ever seen.”
The median home price in Oakland has soared 178 percent since 2011, almost double the gain in San Francisco, Paragon data show.
Oakland is still struggling with a reputation for social and political unrest. Its police department is operating without a chief after three departed, one after another, in the span of about a week in June amid a sex scandal involving officers and a teenage prostitute. It’s also an epicenter of social protests, including those connected to the Black Lives Matter and Occupy Wall Street movements.
The troubles aren’t deterring newcomers, city officials say.
“It’s not slowing growth in the way that it used to five or 10 years ago,” said Marisa Raya, an economic analyst in Oakland’s office of economic and workforce development. “But we are certainly seeing a lot of political activism around the super-fast rent growth.”
Oakland voters will consider ballot measures in November to strengthen rent control and issue bonds for affordable housing.
Blackstone has teamed with CityView, a property company started by former U.S. Housing and Urban Development Secretary Henry Cisneros, to build a 423-unit apartment complex in Oakland. The $175 million project at 3093 Broadway, due to be finished in 2018, is the first development in the city for the world’s largest alternative-asset manager.
Jon Gray, Blackstone’s billionaire head of real estate, said he thinks Oakland may become the next Brooklyn -- a comparison that has frequently been evoked in recent years as the city comes into its own as a hot spot after previously being overshadowed by its glitzier neighbor.
“We very rarely do ground-up development, so this project reflects our strong confidence in the transformation under way in Oakland,” Gray said in an e-mail.
Boston Properties, the largest publicly traded U.S. office owner, signed a letter of intent to invest in a 25-story residential development in Oakland’s Temescal neighborhood, Chief Executive Officer Owen Thomas said on a July 27 earnings conference call.
“Given the high cost of multifamily product in the San Francisco market, we believe we can deliver high-quality units that are approximately at a 20 percent discount to San Francisco rents in a location that is a 16-minute transit ride from the Embarcadero BART Station in downtown San Francisco,” he said on the call. Arista Joyner, a spokeswoman for the company, declined to comment further.
Oakland’s job growth also is showing signs of outpacing its neighbor, with listings up 16 percent since April, compared with a 1 percent decline in San Francisco, according to LinkUp, a job-search engine based in Minneapolis. Among the companies setting up shop is San Francisco-based Uber, which last year bought the old Sears building in the Oakland’s urban core and is renovating it, with plans to open in late 2017.
The city is home to consumer-products maker Clorox Co.; Kaiser Permanente, a nonprofit health insurer and hospital chain; and internet-radio service Pandora Media Inc.
The rate for top-quality office space in the city has grown 43 percent in the second quarter compared with two years earlier, while San Francisco’s rent is up 20 percent in that time, according to data from real estate brokerage CBRE Group Inc.
The influx of companies is helping to prop up housing prices. Even as the technology industry slows, there are still “many, many buyers” in Oakland, said Carla Buffington, a real estate broker at Pacific Union in the city.
“We’re seeing a majority of properties selling with multiple offers,” Buffington said. “Almost weekly, I am shocked by the price that a certain property will get.”