The strength of our local housing market for the first half of this year continued to be unprecedented, with prices reaching stratospheric valuations.
The median sales price for a single family home in Palo Alto increased to a new record high of $2,667,000 (compared to $2,320,000 for the first half of 2014), an increase of 15%.The sale to list price ratio was 113.8% in 2015 as opposed to 114.7% in 2014 and average days on the market was 18 days as opposed to 13 days in the first half of 2014.
For Menlo Park the median sales price increased 9.5% (to $2,020,000 from $1,845,000). The sale to list price ratio was 110.2% as opposed to 107.7% in 2014 and average days on the market was 15 days as opposed to 20 days in 2014.
For Atherton the median sales price increased an incredible 58.55% (from $4,100,000 to $6,500,000). The sale to list price ratio was 100.6% for 2015 as opposed to 102.7% in 2014 and average days on the market was 57 days in 2015 as opposed to 56 days in 2014.
The townhouse and condo market also set new records. The median sale price in Palo Alto for 2015 is $1,542,000 as opposed to $1,265,001 in 2014 (a surge of 22%) and in Menlo Park the median sale price increased 11% from $1,212,500 in 2014 to $1,343,000 in 2015.
As of July 8, 2015 the listing inventory was low with only 29 active listings of single family homes in Palo Alto (as opposed to 32 in 2014), 21 in Menlo Park (as opposed to 29 in 2014) and 17 in Atherton (as opposed to 25 in in 2014).
During the first half of 2015 we sold 165 houses in Palo Alto (compared to 177 in 2014), 150 houses in Menlo Park (compared to 188 houses in 2014) and 39 houses in Atherton (compared to 59 houses in 2014). The number of houses sold continues 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.
The demand for housing reached an unpresented high due to the following reasons:
1- Chinese interest in our local real estate market continues to grow.
2- Abundance of liquidity in the market from IPOs and mergers and acquisitions.
3- A steady 3% annual increase in the number of new jobs.
4- Rising consumer confidence and spending.
5- The demand for housing outstrips supply: inventory is at a new low.
6- Lower homeowner turnover to upgrade.
7- Institutional investors continue to invest in real estate as returns are better than from other investments.
8- The improving economy is drawing buyers back to the housing market. 54 percent of American adults living with friends or relatives plan to move out within a year.
The Bay Area has the strongest economy in the entire country, and nearly in the entire world, said Kenneth Rosen, chairman of the Fisher Center for Real Estate and Urban Economics at the University of California, Berkeley. Job growth, spurred by the incredible resurgence of the technology sector in the Bay Area continues to drive up the values of real estate assets across the region.
The Federal Reserve has kept interest rates at rock bottom for several years as a way to pull the economy out of the Great Recession. But that has created an “easy money” environment in which people are looking to stash their dough somewhere with more than a zero percent return, whether in the stock market, real estate, or in tech companies with skyrocketing — perhaps excessive — valuations.
Short-term interest rates currently sit at zero, but the Fed has said that they will go up to 3 or 3.5 percent over the next decade. The question is when will they start raising the interest rates? It could be in September, or perhaps sooner.
The question on everybody’s mind is: are we going to hit another bubble soon?
In our local market real estate and tech rise and decline together, but I doubt that this time we will witness a bubble. A price correction is likely in a couple of years. The more stringent lending criteria and the fact that the majority of our sales are cash sales reduce the likelihood of a bubble.
Should I buy a house now?
With prices reaching new highs the question I hear often from my clients is should I buy a house now or wait?
In the past the local market has experienced an adjustment of up to 20% from the absolute high, and greater adjustments for upper-end properties. It is hard to guess when that kind of adjustment might happen. The real estate market goes through cycles. Buyers who try to wait for prices to reach the bottom before buying run the risk that prices go up even further. In addition desirable houses in prime locations tend to change much less in value when the market goes down. If you are flexible about the location and condition of a house it could make sense to wait for a market adjustment but if you are looking for a prime property in a great location, waiting may not get you the best outcome.
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.
For sellers it is a great time to sell. It is hard to catch the market at its absolute peak. It is better to sell now before the interest rates go higher and before the fundamentals in the economy change.
Menlo Park Price Per Square Foot
Price Per Square Foot in Different Areas in Atherton