06 January, 2015

Real Estate Market Report For Palo Alto, Menlo Park and Atherton

Happy New Year!

The strength of our local housing market for 2014 continued to be unprecedented, with new record sale prices. While national data has trended toward a more balanced market between buyers and sellers, competition remains fierce in our area.
The inventory has been at a historic low. The strong demand has caused prices to rise higher than expected.
The median sales price for a single family home in Palo Alto increased 14.8% to a new record high of $2,410,000 (compared to $2,100,000 for last year). The sale to list price ratio was 113.7% and average days on the market was 17 days. The highest sale on MLS in Palo Alto was 215 Lowell Avenue, which sold at $19,880,000.         
For Menlo Park the median sales price increased 24.2% (from $1,510,000 to $1,875,000 in 2014). The sale to list price ratio was 107.7% and average days on the market was 21 days. The highest sale on MLS in Menlo Park was 1275 Santa Cruz Avenue, which sold at $5,750,000.
For Atherton the median sales price increased 24.5% (from $3,575,000 to $4,450,000). The sale to list price ratio was 101.9% and average days on the market was 58 days. The highest sale on MLS in Atherton was 244 Polhemus Avenue, which sold at $18,900,000. It is important to note that Atherton is having more private sales than any other town in the area. In October 2014, Forbes named Atherton 94027 the most expensive zip code in the country for the second year in a row.
The townhouse and condo market prices had an incredible surge of 28.3% with a median price of $1,250,000 in Palo Alto for 2014 compared to $974,500 last year. The highest sale was at 334 Hawthorne Avenue, which sold at $2,600,000. In Menlo Park the surge was 48.2% for a median price of $1,200,000 (up from $810,000 in 2013). The highest sale was at 1330 University Drive, which sold at $2,600,379. The townhouse and condo market has been exceeded home appreciation in Palo Alto, Menlo Park and Mountain View.
As of December 31, 2014 the listing inventory was low with only 8 active listings of single family homes in Palo Alto, 9 in Menlo Park and 7 in Atherton.
During 2014 we sold 356 houses in Palo Alto (compared to 396 in 2013), 356 houses in Menlo Park (compared to 336 in 2013) and 100 houses in Atherton (compared to 97 in 2013). The number of houses sold in Palo Alto continued to decline because of the low inventory and that in part explains the number of multiple offers on almost every property and the significant increases in home prices.
Asian Investing Trends
Chinese interest in our local real estate market has grown exponentially in recent years and represented 35% of the total transactions in 2014.
The recent Chinese surge in investing in real estate is the product of political and economic policy changes in China. In 1980 Chairman Deng Xiaoping opened China to foreign investment in the global market, which spurred China's economic transformation and modernization and raised the standard of living for millions of Chinese. In March 14, 2013 President Xi Jinping coined the "China Dream" as a renewal of the Chinese nation, with greater emphasis on collectivism. This sudden shift is one of the main reasons more Chinese are buying property abroad. The interest in the U.S. real estate market is due to multiple factors: the proximity of the region to China, the local Chinese community, pristine environment, the sought-after schools and colleges, the political stability and the immigration laws.
The US had an estimated international real estate sales of $68.2 billion for the period from April  2012 to March 2013. The Asian share of this market was 54%.  Canada (notably Vancouver) along with New York, Los Angeles, Philadelphia, Detroit and Houston by far attract the most Chinese buyers.
In November 2014, President Obama announced a new visa law for Chinese nationals and predicted that the new law could inject billions of Dollars into the American economy. This new visa law allows Chinese students to obtain visas up to five years from a previous one year limit and business and tourists travelers will be able to extend their visas up to 10 years. This new law will have a positive impact on the real estate market in Silicon Valley and encourage Chinese investors who were standing on the fence to take the plunge  and invest in U.S. properties.
The Asian American market represents a huge growth opportunity and is expected to reach $1 trillion in just five years.
Looking Forward
The question on everybody’s mind is: where is this market going and are we going to see a housing bubble soon?
The US is experiencing the biggest boom in the economy since the late 90’s.  The nation's unemployment rate was 5.8 percent in November. And the country has recovered the 8.8 million jobs lost during the downturn.
Silicon Valley continues to lead the job growth in California. Over the past 12 months the Peninsula and East Bay labor force has added 84,000 workers. The year-over-year data showed that the number of jobless people in Santa Clara County stood at 48,600, or 5.1 percent of the labor force, down from 6.2 percent in 2013. The state's unemployment rate dropped to 7.2 percent in November, down from 8.4 percent a year ago.
All the factors that typically influence demand are constructive, including a strengthening economy, more hiring, rising consumer confidence, higher stock prices and low mortgage rates.
With its strong tech-driven job growth and higher household incomes, prices in the Bay Area will continue to push upward. The Federal Reserve Bank likely will have to start raising interest rates sometimes in the near future.  The average rate for a 30-year fixed mortgage was 3.80 percent in the week ended December 18.
The economic recovery next year will be "moderate and choppy."  However, the boom in our local real estate market is sustainable.
The question is what should sellers and buyers do?
For buyers, if you plan to stay in your house more than 5 years, the best time to buy is now, using at least a 7 year loan or longer. Home prices are not going down anytime soon and you should buy before prices and interest rates go higher.
For sellers If you are planning to sell your home in 5  to 7 years you may want to think about selling it soon so you are not selling in a down cycle. Although we have  a fast moving market, it is still important to know when is the best time to list your home on the market.
The numbers of days houses are  on the market and the number of listings on the market are important indicators to consider when buying and selling a home and affect buyers and sellers differently. Sellers should avoid listing their homes when houses are staying on the market longer (this is usually in August, November and December) and when the listing inventory is high. As homes remain on the market for long periods of time they become stale and more difficult to sell. By contrast buyers should intensify their search activity during the aforementioned months. The downside is that it is usually more difficult to find the right house.
For buyers who are trying to figure out if they should remodel their house or buy a larger one, it is important when evaluating options to take into account the tax consequences to each option. There are advantages to holding your primary home. The gain on the property is not taxed until you sell the home and proposition 13 allow long-term holders of real estate to pay less property tax. However if you decide to sell you can take advantage now of the complete IRS tax exemption of up to $500,000 of gain for a couple and use that amount as an additional down payment when buying a larger home.

              Palo Alto Median Home Price For the Last Five Years

Price Per Square Foot By Areas in Palo Alto

Palo Alto Sales By Price Range

The strongest sales activity in Palo Alto was in the $2 to $3 million price range (173 units in 2014 as opposed to 93 units in 2013) followed by the $3 to $5 million range (70 units in 2014 as opposed to 31 units in 2013) as illustrated in the following chart:

Menlo Park  Median Home Price For the Last Five Years

Price Per Square Foot in Different Areas in Menlo Park

Menlo Park Sales By Price Range 

The strongest sales activity in Menlo Park was in the $2 to $3 million price range (94 units in 2014 as opposed to 35 units in 2013) followed by the $3 to $5 million range (55 units in 2014 as opposed to 29 units in 2013) as illustrated in the following chart: 

Atherton  Median Home Price For the Last Five Years

Price Per Square Foot in Different Areas in Atherton

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