East Bay Market Update - February 2026

Thinking of buying or selling a home in Berkeley?

At Calia Homes, we specialize in helping East Bay clients navigate the Berkeley real estate market with confidence. Whether you're a first-time buyer searching for the perfect home near the Gourmet Ghetto or a longtime homeowner preparing to sell in the Elmwood or Northbrae neighborhoods, our experienced Berkeley Realtors offer trusted guidance, local expertise, and a people-first approach. With decades of experience and a reputation built on referrals, we’re here to help you make smart, successful real estate decisions in Piedmont and the surrounding East Bay communities.

Please note that the ADU Grant program is no longer available

2026 ADU Updates: What Local Buyers and Sellers Should Know

California’s newest round of Accessory Dwelling Unit (ADU) laws represents one of the most significant shifts in small-scale housing in years. While the changes apply statewide, the impact will be especially felt in the East Bay, where limited supply, high costs, and older housing stock make ADUs a critical piece of the local housing landscape. The updates aim to accelerate construction, create a path for legalizing older conversions, and expand how ADUs can be used. At the same time, new federal lending guidelines allow buyers to count projected ADU income toward mortgage qualification, directly influencing affordability and purchasing power. A More Flexible Legal Environment Beginning January 1, 2026, AB 976 will eliminate the owner-occupancy requirement for most new ADUs. Owners will no longer need to live on-site, allowing both the primary home and the ADU to be rented out. AB 2533 establishes a pathway for legalizing unpermitted ADUs built before 2020, provided they meet basic health and safety standards. This is particularly relevant for older garage conversions common throughout the East Bay. Meanwhile, SB 897 and AB 2221 streamline approvals and prevent cities from adding extra design or procedural barriers. With strengthened enforcement from the Department of Housing and Community Development (HCD), jurisdictions will now be held to a firm 60-day deadline for approving or denying ADU applications. Financial Rules Catch Up With ADUs Fannie Mae and Freddie Mac now allow buyers to use projected rental income from one ADU when applying for a mortgage on a primary residence. Rental income cannot exceed 30% of the income used to qualify the borrower. In high-cost markets, that difference can determine whether a loan qualifies. For sellers, a permitted ADU now carries more weight in the appraisal process and broadens the buyer pool. Examples of How This Could Work One scenario involves a long-converted garage studio legalized under AB 2533. Once permitted, its documented rental value increases the property’s appeal, justifying higher offer prices. In another scenario, a buyer evaluating a home with a permitted ADU applies $1,500 in adjusted rental income toward loan qualification, moving the application into approval range and later offsetting monthly housing costs. Financial Assistance for Building Last but not least, the CalHFA ADU Grant Program now offers up to $40,000 for pre-development costs such as plans and permits. Applicants must meet income limits, live in the home, hold title, and work with a CalHFAapproved lender. More info at www.calhfa.ca.gov/adu. Why This Matters For homeowners, these updates open new ways to use space and income. For buyers, ADUs can improve affordability. And for sellers, a legal ADU is a market advantage. As these laws roll out, knowing your property’s ADU potential and how lending and legalization rules apply will matter more than ever. If you want help evaluating your options, we’re here to guide you.