28 January, 2018

Local Real Estate Market Report and Outlook for 2018

The local real estate market recovered from the modest dip in 2016 to unexpectedly climb and
 set new records in many area s in our communities in 2017.  Median home prices increased
15.7% in Palo Alto, 14.9% in Mountain View, 11.4% in Los Altos, 11% in Portola Valley and
7% in Menlo Park. In contrast median home prices decreased 21% in Atherton and 16.5% in
The Silicon Valley economy grew 7.8 percent last year, much higher than the nation's 2.6
percent growth. The steady job market, low mortgage rates and foreign investment helped
to propel demand for real estate and push up property prices. International buyers share
increased in 2017 including the share of Chinese buyers that had stepped back in 2016
because of their government's tightening of money outflow.
Property price increases were also driven by area housing shortages and limited available
inventory.  Supply outpaced  demand by far and buyers who are determined to purchase a
home in the area need to be ready, willing and able to move quickly. Some prospective
buyers, especially younger buyers and those entering the market for the first time, are
struggling to buy a home as affordability reaches a new low of 17% in California.
The charts below show 2017 sales data for local area communities, including median sales
prices, sale to list price ratios and prices per square foot. 
Palo Alto
Menlo Park
Los Altos
Los Altos Hills
Mountain View
Portola Valley
% Of Change
2017 Median Sale price
2017 Sale to List Price Ratio
Price Per Square Foot by City
  Challenges to Home Sales in 2018
  • Supply will remain a thorn for brokers, developers and homeowners
  • Long-time homeowners are expected to remain in their homes to avoid
  • paying significant capital gains taxes due upon sale and to maintain low
  existing mortgages
              property taxes and low rates on current mortgages.
  • More single family units are expected to become rentals
  • Mortgage interest rates are expected to move higher. According to
  • mortgage professionals 30 year interest rates will rise to 4.5 percent
     in 2018
  • The tax reform law changes affect real estate beginning with the 2018 t
    tax year.
You will no longer be able to deduct:
  • The State income tax and property taxes above $10,000 per year in total;
  • Moving expenses (with an exception for certain military);
  • Mortgage interest beyond interest on $750,000 of acquisition debt, if you purchase a new home; and
  • Mortgage interest paid on equity debt (this is no longer deductible for any taxpayers).
      I do not expect any significant changes to our local market as of the result of the new tax law because of the high demand and the wealth of our clients.
The Positives in 2018
  • The local economy is strong and job growth will be expanding
  • Wages are expected to increase
  • More millennials will be leaving the nest and looking to buy homes
  • The net cash gain to sellers is the highest since 2006
2018 Real Estate  Industry Outlook
I am optimistic about the economy and the housing market as the new
 year begins. High demand and robust economic conditions are reasons
 to be hopeful. Unless there’s a major correction in the tech sector, prices
 will continue to rise. I expect our local market to increase 8-10% in value.
The question on everybody’s mind is: are we going to hit another bubble
soon? The market conditions today are fundamentally different from the
bubble of a few years ago. Home sales are recovering and we don't have

the subprime lending we had before. Mortgage lending has stringent r
equirements today - almost too stringent. There is job growth and
business and consumer sentiments are high and business is booming
in what experts are saying could become the longest economic expansion
since WWII.
Please share my semi-annual  report with your friends who might be looking
to buy or sell their home. I will be happy to answer any questions or discuss in further detail the state of the real estate market

13 July, 2017

2017 Semi- Annual Market Report For Palo Alto, Menlo Park and Atherton

The local housing market showed mixed results for the first semester of this year as Palo Alto’s median sale price increased 10% with average days on the market of 21 days while Menlo Park’s median sale price decreased 4.5% with average days on the market of 25 days and Atherton’s median sale price decreased 17.5% with average days on the market of 43 days. Demand from international buyers has slowed somewhat but we are still seeing multiple offers on many of our listings although the number of offers has decreased.

Set forth in the tables below are the median sales prices, sale to list price ratios and price per square foot for different areas of Palo Alto, Menlo Park and Atherton for the first half of 2017.

2017 Median Sale Price In Palo Alto, Menlo Park and Atherton

2017 Sale to List Price Ratio

2017 Price Per Square Foot for Palo Alto by Areas

2017 Price Per Square Foot for Menlo Park by Areas

2017 Price Per Square Foot for Atherton by Areas

The townhouse and condo market was down. The median sale price in Palo Alto for 2017 decreased from to $1,543,000 in 2016 to $1,472,000 in 2017 and the sale to list ratio was 106.3%. In Menlo Park the median sale price increased from $1,267,000 in 2016 to $1,312,000 in 2017 and the sale to price ratio was 100.4%.
 About the same number of homes sold during the first half of 2017 as sold during the first half of 2016. 174 houses sold in Palo Alto (compared to 170 in 2016), 149 houses sold in Menlo Park (compared to 152 houses in 2016) and 44 houses sold in Atherton (compared to 37 houses in 2015). 

 The current market conditions could be described as follow:

1-      Chinese interest in our local real estate market has slowed somewhat but not in Palo Alto.
2-     There is an abundance of liquidity in the market from IPOs and mergers and acquisitions.
3-     There is a steady increase in the number of new jobs.
4-     Consumer confidence and spending is strong. 
5-     The demand for housing outstrips supply
6-     There is low homeowner turnover due to upgrade.
7-     The improving economy is drawing buyers back to the housing market.

Looking Forward
Here are eight things housing experts expect to see in the next semester:
  1. Prices will continue to rise but more slowly in Palo Alto and will remain more stable in other areas in the Mid- Peninsula.
  2. Affordability will worsen. 
  3. Mortgage rates will be volatile.
  4. Credit availability may improve.
  5. Supply will remain short.
  6. More millennials will become homeowners.
  7. Competition will grow fiercer.
  8. Political impact on the housing market would be more likely neutral.

21 June, 2017

Homebuyer Insights Report- Bank of America

We’re excited to bring you our second annual Bank of America Homebuyer Insights Report, which explores the latest attitudes, behaviors and preferences of the modern homebuyer.
If there’s one thing to take away from our report this year, it’s that forward-thinking millennials are buying homes – and they’re happy with their choice. This growing group of millennials is seeing the value of getting into a home. In fact, nearly 80 percent who bought homes report that homeownership has had a positive long-term impact on their financial picture. Clearly, the millennial generation is coming of age and realizing it might not make sense to wait anymore to purchase their first home.
While “dreamers” told us last year that they want to skip the starter home in favor of a house that suits their needs over the long term, the overwhelming majority of millennial homeowners say their current home is a “stepping stone” to their forever home. These millennial owners strongly believe owning a home is more affordable than renting. This stands in sharp contrast to those who have not yet purchased a home, who say they are roughly split in their view of whether renting or owning is more affordable.
Some prospective first-time homebuyers believe their personal circumstances should line up perfectly before buying a home. Would-be buyers may think they’re not prepared in all the ways they need to be. For example, many first-time buyers in our report believe they need 20 percent or more of a home’s price for a down payment, which may be why just less than a quarter think they can currently make one. For this group, having the proper financial means to purchase is the top reason for buying a first home, ahead of additional factors such as wanting a place to call their own and preferring a mortgage to paying rent.
The reality is that, with proper help, homebuyers can very often achieve homeownership in a way that is both sustainable and rewarding. Bank of America offers a variety of tools and resources to help homebuyers navigate the homebuying process and purchase an affordable home. Our Affordable Loan Solution™ mortgage, which requires a down payment as low as 3 percent, speaks directly to the needs of first-time buyers who are striving to overcome the down payment hurdle. Additionally, our Down Payment Resource Center is an online tool that helps consumers search a variety of down payment and closing cost assistance programs.
We’re encouraged to see homeowners continuing to find the deep benefits – both financial and emotional – of homeownership. We hope that this report gives both prospective homebuyers and existing homeowners insights  that will allow them to take advantage of everything that owning a home can offer.

09 May, 2017


For longtime Palo Alto homeowners, soaring home prices have been an unexpected windfall, a bonus on top of good schools, plentiful jobs and a close-knit community. But for some, high real estate prices are a mixed blessing: they may want to downsize to a smaller place or sell to provide for their retirement or pay for relatives’ education. Now they face a huge tax bill, in the form of capital gains. 
So it’s no surprise then that more Palo Altans are turning to charitable remainder trusts (CRT) to make selling their home less financially painful. 
“For eight years, I didn’t see any of these at all. It’s picked back up again,” says David Spence, a partner at the Menlo Park law firm Royse Law. Spence says high real estate values, the booming Silicon Valley economy and higher tax rates have been behind the flurry of inquiries he’s received in recent years. 
Area charities are also aggressively courting charitable giving while recognizing that the potential donor’s largest asset may come with a huge tax liability. Both Stanford and the Silicon Valley Community Foundation, for example, boast on their websites of their ability to act as trustees for a CRT.
CRTs were not uncommon in the red-hot economy of the 1990s but tailed off through much of the first decade of this century, perhaps due to favorable changes to the tax code in 1997 but Palo Alto’s booming prices mean many potential sellers will today easily top the $500,000 per couple exclusion.
The trusts work like this: A person who wishes to sell their appreciated home instead transfers it into an irrevocable trust, which sells the asset without having to pay the capital gains tax. The trust then pays the donor (“grantor” in legalese) a portion of the trust’s assets annually. The payment stream can be a fixed dollar amount or percentage of the trust’s assets and for a fixed number of years or for life. What’s left over at the end of the trust’s life, the “remainder,” goes to the charity. The donor must pay taxes on the income stream but gets to deduct the remainder gift immediately.
Margo Felt of the Los Altos law firm Thoits Law says some clients cite tax planning, not charity, for creating a charitable trust. “Some people can end up better off having income come out of the charitable trust.” 
Spence recently worked with a retiree who had few assets aside from her home and used a CRT to pay for her retirement while giving back to the community.


As with anything tax-related, these trusts come in multiple flavors and the tax benefits can vary dramatically based on circumstances so working with a qualified attorney or estate planner is a must. The property should generally be free of debt, although Spence says that there are instances where he has worked out an agreement to split a property into separate pieces with one placed in the trust and the other, to which the debt is attached, left outside. 
“That is a solution that can sometimes be done depending on the bank, but it’s not easy,” Spence says. “The general rule is that you’ve got to get rid of the debt before you create the trust.” 
Spence also says that homeowners should not have made a commitment to sell their property and should be out of their house prior to its being placed in trust. “If the owner is living in the house [after it is in the trust], that is private inurement,” Spence says. That is, “they benefit by living in the house,” he says. 

Beyond that, for anyone sitting on a home that is worth 25 times what they paid for it, not uncommon in Silicon Valley, and who wants income for their later years a CRT may allow them to sell.

14 April, 2017

CAA Loses First Round in Rent Control Legal Battle

Last week a court denied the California Apartment Association's (CAA) request for a preliminary injunction in its case against the City of Mountain View to block the implementation of Measure V. Measure V is the city's voter approved rent control and just cause eviction ordinance. A different court recently denied the same motion in CAA's fight to block a similar initiative in the city of Richmond.
CAA had asked the court to prevent the implementation of the ordinance until resolution of the lawsuit which is scheduled for trial later this year. The court found that CAA was unable to prove its members would suffer irreparable harm if Measure V went into effect prior to the resolution of the litigation over Measure V.

This decision now paves the way for full implementation of rent control and just cause eviction in Mountain View, which goes into effect immediately. Measure V applies to buildings with three or more units with different regulations based on whether it was built before or after February 1, 1995. Under state law rent control can only apply to buildings built before that date.

10 January, 2017

2016 Local Real Estate Market Report

The 2016 local real estate market remained strong as a result of tight supply and high demand. Multiple offers were the norm. The share of international buyers dropped to 3% in California, the lowest level in 9 years.

Continued improvement in the employment market, solid income gains and competition for a limited number of homes pushed prices higher
in most cities in the local market.

Summary of Market Forecast for 2017:

·       US economy and job growth expanding
·       CA economy out-performing the nation
·       Strong 2017 housing market with little risk of a major downturn
·       Slowing price and sales growth in 2017
·       Rates rising in response to Fed policy but remaining attractive
·       Millennials leaving the nest as job opportunities expand
·       Listings remaining low
·       Affordability challenges for first time & repeat buyers
·       Boomers staying put
·       International buyers dropping (China announced a new policy effective January 1, 2017)
·       CA Jobs growing faster than nation with CA unemployment near an 8-year low
·       Consumer confidence at a 9 year high and spending is robust
·       Lack of affordability will remain the main challenge
·       Migration patterns mirror housing affordability and jobs
·       The economy will keep going – longest business cycle in history
·       A trend toward government deregulation
·       Wild Card: policies of President-elect Donald Trump

The fundamentals for the 2017 housing market remain strong but it will be a year of slowing and moderate growth, set against the backdrop of a changing composition of home buyers and a post-election interest rate jump that could potentially price some first-timers out of the market. Interest rates are expected to reach 4.5 percent due to higher expectations for inflationary pressure in the year ahead with unemployment expected to decline to 4.7 percent nationwide by the end of the year. Despite a more moderate housing market overall in 2017, strong local economies and population growth will continue to fuel the market.

New-home buyers could face increased building costs if President-elect Trump follows through on his tougher immigration policies, which may worsen the construction industry labor shortage. With the expected continuing increase in interest rates, first time buyers will face new hurdles as they navigate the qualification and buying process. These higher rates are associated with anticipation of stronger economic and wage growth next year, both of which favor buyers. However, higher rates will make qualifying for a mortgage and finding affordable inventory more challenging.

This year’s housing indicators don’t take one major wild card into account: President-elect Donald Trump. Tax cuts and increased infrastructure spending would stimulate economic growth, which is good for housing. But a trade war with China and an ideological confrontation with California could hurt our economy.

A new housing crisis may worsen under the Trump administration, according to some housing economists. Trump backs the Republican Party stance to change the structure of or completely eliminate the Consumer Financial Protection Bureau that was created by the Dodd-Frank Act to oversee Federal financial laws. Trump believes that the  lack of mortgage credit availability is due to excessively strict criteria and unless you have a lot of money in the bank, you can’t borrow.

This would boost mortgage lending in the short term, and give more people the opportunity for home ownership, a pillar of the American dream. However, it could have ugly effects down the road. The higher demand for homes would push up house prices, and pretty soon the next generation would find themselves struggling to qualify for sufficient mortgage finance and as we learned just a few years’ ago, loosening lending standards can lead to dangerous housing and credit bubbles.

Abundance of Uncertainty

·       Brexit: Limited direct impact on US.
·       Unexpected rise in interest rates
·       Hit to equities 
·       Global instability

Supply Remains an Issue

Long-time homeowners are not moving as in the past. Some of the reasons are listed below:
·       Low rate on current mortgage, low property taxes
·       Capital gains hit
·       Replacement housing may be unaffordable
·       May not qualify for a mortgage today
·       Elect to remodel and stay - children to inherit the home of their parents?
·       Fewer housing units being turned over since the Great Recession
·       Owners investing in stay put alterations/additions reaches all-time high and gaining steam - up 16% from 2015 level

    Boomers not moving as often: 71% of Californian’s aged 55+ haven’t moved since 1999 and the majority do not plan to sell home when they retire

·       92% have equity in their home

Miscellaneous Facts:

·       52% of parents worry about children having fewer opportunities to succeed
·       75% plan or have already helped children with down payment.
·       Only 31% of households can buy a median priced home in California
·       Millennials: The American dream is still important. Many millennials also believe buying a home is a safe investment
·       Nearly half of all renters plan to buy a home. 69% of millennial renters would look into purchasing if knew about lower down-payments
·       The number of years a homeowner owns before selling is up to 10 years from 6-7 years in the past

2016 Housing Statistics:

The number of houses sold annually was higher in Palo Alto for 2016 and lower for Menlo Park and Atherton. 371 houses sold in Palo Alto (compared to 326 in 2015), 296 houses sold in Menlo Park (compared to 315 in 2015) and 70 houses sold in Atherton (compared to 76 in 2015).
As of December 31, 2016 we had only 11 active listings of single family homes in Palo Alto, 12 in Menlo Park and 9 in Atherton. 
100 townhouses and condos sold in in Palo Alto in 2016 with a median price of $1,505,000 compared to $1,462,000 last year, an increase of 3%. 74 townhouses and condo sold in Menlo Park with the median price declining 9.4% from $1,400,000 in 2015 to 1,267,500 in 2016
The median sale price for a single family home in Palo Alto decreased 4.3% to $2,555,000 (compared to $2,670,000 for last year), the first decrease since 2010. The sale to list price ratio was 104% and average days on the market was 23 days, an increase from 18 for 2015. 
For Menlo Park the median sale price increased 4.9 % from $2,030,000 to $2,130,000 in 2016. The sale to list price ratio was 103.9% and average days on the market was 19 days, the same as last year.
For Atherton the median sale price increased 0.84% from $5,950,000 to $6,000,000. The sale to list price ratio was 97.7% and average days on the market was 73 days, up from 52 days for last year. The highest sale on MLS in Atherton was 246 Atherton Avenue, which sold at $33,350,000. It is important to note that Atherton continues to have more private sales than any other town in the area.   


Predicting how the real estate market will behave is never an exact science and 2017 could be especially difficult to predict.

I think at this point it will be a very interesting year as we see what policies President-elect Trump will put into place.

Trump appears to be trying to create a new spirit for business so that even small businesses might stand a chance in 2017 and beyond. This could help more people feel confident about buying a home, or investing regardless of the prices. However, planned repatriation of business back to the US may come with a big price — a high dollar and strong inflation.

Top Factors That Will Affect The Housing Market In 2017

Increasing interest rates and changing buyer demographics are setting the stage for five key housing trends:

1.     Millennials and boomers will dominate the market –– Next year, the housing market will be in the middle of two massive demographic waves, millennials and baby boomers, that will power demand for at least the next 10 years.

More millennials will become homeowners, driving up the home ownership rate. Millennials are also more racially diverse, so more homeowners will be people of color, reflecting the changing demographics of the United States. Millennials are expected to make up about a third of the buyer pool.

In the last several years baby boomers' participation in the housing market has dwindled, although that may be starting to change as the oldest baby boomers are entering their late 60s. While a sizable number want to downsize to control expenses, we're seeing others move to the biggest house they've ever owned because they've got children and grandchildren and they want them to come visit.

2. Fewer homes on the market and fast moving markets – Inventory is currently down The conditions that are limiting home supply are not expected to change in 2017. For those considering new construction in 2017, it’s worth considering the added cost that may come amidst ongoing construction labor shortages that could get worse if President-elect Trump follows through on his hardline stances on immigration and immigrant labor.

                     The percentage of people who drive to work will rise as homeowners move further into the suburbs seeking affordable housing.

    3. Interest rates: A 30-year fixed rate mortgage averaged 4.32% for the week ending December 29, up from 4.01% a year earlier. Mortgage rates forecast to stay low and could reach 4.5% in 2017. With Trump in power, lending requirements are expected to be eased.

                   4. Home prices rising:

Low inventories and modest economic growth should push up price growth next year.  If economic indicators are any guide, the housing market is heading for a fifth straight year of rising home prices, increased sales, more rent hikes and booming home construction.

4.    Impact of Chinese buyers on the local market

China’s foreign exchange regulator announced a new policy effective January 1, 2017 that affects all individuals who are looking to buy overseas real estate  China’s capital controls are becoming stricter.

·        Citizens will now have to fill out an application form stating the purpose of their foreign purchase. The  purpose cannot be real estate investment, but it can be done for purposes such as travel, education and so on.

·        Prepare for a longer time to close deals with Chinese buyers.

·        Chinese investors continue to find ways around the controls.

·        I expect that the average purchase price for Chinese buyers will decrease in the next few years. More middle income class Mainland Chinese are looking to invest in overseas properties, and more second tiers cities are being targeted due to budget and capital controls.

The real estate market goes through cycles. Buyers who try to wait for prices to bottom before buying may miss the opportunity to buy. My recommendation therefore is to think strategically about when you want to buy and what kind of house you would like to buy and decide the risks that you are willing to take. If you find the right house for you, you may want to buy it now rather than wait for a market adjustment.

For sellers, the market appears to have reached a peak and prices have stabilized or are on the way down for some cities. Therefore it is a good time to sell before prices go further down and interest rates go higher and before the fundamentals in the economy change.

*Please share my semi-annual report with your friends who might be looking to buy or sell their home. As always thank you for your support, I appreciate any referrals you send my way. I will be happy to answer any questions or discuss in further detail the state of the real estate market.


California Association of Realtors, Leslie Appleton

US  Dept. of Commerce, Bureau of Economic Analysis

Statistics are from MLS listings and do not include private sales