08 January, 2016

2015 Annual Market Report For Palo Alto, Menlo Park and Atherton

The health of the US economy is back on track with unemployment rate falling to 5%, and greater stability has brought a sigh of economic relief. The fundamentals of a sound economy reflect a healthier U.S. financial system.
The strength of our local housing market for 2015 continued to be unprecedented. Competition remains strong in our area and the imbalance between supply and demand bids up home prices to new records. The lack of inventory continues to be the challenge to a more balanced market.
The number of houses sold annually continues to decline. During 2015 we sold 311 houses in Palo Alto (compared to 356 in 2014), 295 houses in Menlo Park (compared to 356 in 2014) and 69 houses in Atherton (compared to 100 in  2014).
As of December 31, 2015 we had only 10 active listings of single family homes in Palo Alto, 5 in Menlo Park and 19 in Atherton.
The median sale price for a single family home in Palo Alto increased 11.4% to a new record high of $2,684,000 (compared to $2,410,000 for last year). The sale to list price ratio was 112.5% and average days on the market was 18 days. The highest sale in Palo Alto was 1950 Cowper Street in Old Palo Alto, which sold in a private sale at $30,000,000.         
For Menlo Park the median sale price increased 8% (from $1,875,000 to $2,025,000 in 2015). The sale to list price ratio was 107.6% and average days on the market was 19 days.
For Atherton the median sale price increased an amazing 34.62%  (from $4,420,000 to $5,950,000). The sale to list price ratio was 101.3% and average days on the market was 52 days. The highest sale on MLS in Atherton was 119 Tuscaloosa Avenue, which sold at $35,300,000. It is important to note that Atherton is having more private sales than any other town in the area.
Townhouse and condo market prices in Palo Alto had a surge of 16.4% for 2015 with a median price of $1,455,000 compared to $1,250,000 last year. In Menlo Park the surge was 16.4% for a median price of $1,420,000 up from $1,200,000 in 2014.
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 (130 units in 2015 compared to 173 units in 2014) followed by the $3 to $5 million range (62 units in 2015 compared to 70 units in 2014) as illustrated in the following chart:
Menlo Park  Median Home Price For the Last Five Years
Menlo Park Sales By Price Range 
The strongest sales activity in Menlo Park was in the $2 to $3 million price range (76 units in 2015 compared to 94 units in 2014) followed by the $3 to $5 million range (40 units in 2015 compared to 55 units in 2014) as illustrated in the following chart:
Price Per Square Foot in Different Areas in Menlo Park
Atherton  Median Home Price For the Last Five Years
Price Per Square Foot in Different Areas in Atherton
International buyers impact on our market:
Although nationally the percentage of International buyers has increased from 6.5% to 16.5% in the last three years, this year the share of international buyers dropped to the lowest level in 8 years.
The presence of Chinese buyers diminished in our local market in the fourth quarter, scared off by stock-market selloff, slowing economic growth, currency devaluation, tightened restrictions on capital outflows and higher prices in the housing market. In mid-December, China’s benchmark stock index fell by 5.5%, its biggest daily slide since August, as Beijing authorities stepped up a crackdown on the securities industry.
Real estate consultants and brokers say the pullback likely is temporary. Chinese residents began buying American homes in large numbers about five years ago, driven largely by growing wealth and a desire to safeguard savings against political instability. China’s history of corruption has also left people vulnerable. Some want to obscure the true extent of their wealth, while others are trying to diversify their assets. Some Chinese are buying homes purely as investments, capitalizing on surging rents in many parts of the United States. Others are trying to move their money beyond the reach of the Chinese government. Investments in the United States may provide another advantage: a pathway to a green card. Some other buyers figure a U.S. address would make it easier for their children to enroll in an American college.
A recent Goldman Sachs analysis found that some types of capital outflows closely follow Chinese anti-corruption campaigns. As crackdowns intensify in China, outflows tend to increase. Chinese analysts think that In the very short term there will be some impact on the market from Chinese buyers who don’t have a foreign income stream or who don’t have a bank account or funds in overseas banks but the outbound real-estate investment trend is likely to remain quite strong.
Are we driving into another housing bubble?
According to real estate experts, the national housing market on the whole is expected to cool off in coming two years. While some experts are worried about real estate bubbles in some areas, there is no clear consensus on the potential occurrence of these bubbles. It is clear that there are no signs of a return to the conditions that caused the last national bubble. Tighter lending restrictions today mean we aren't seeing buyers getting loans they realistically can't pay back like we did in years past. Therefore there is no real danger of a severe crash like the one we all remember from the last decade.
  • For generations, a healthy housing market has been central to the growth and prosperity of the American economy. As long as the job market is strong, the demand for housing will remain strong.
  • The average for 30-year, fixed mortgage interest rates is expected to rise only slightly to 5.1% by the end of 2016 but will still remain at historically low levels. For a few key demographic groups – including current renters and younger would-be buyers – rising interest rates could lead to changes in their home buying plans. But overall, a modest increase in mortgage interest rates is unlikely to completely derail most buyers’ plans.
  • The economy is growing faster than the housing development. Inventory remains a main concern. Sixty-five percent of Silicon Valley CEOs reported employee housing costs as one of their top five challenges for doing business in the region. While Santa Clara and San Mateo counties have been adding jobs and population at a rapid clip, new housing starts have not kept pace.
  • Housing affordability is an issue and will keep a high percentage of younger buyers out of the market because their income has not caught up with the strong year after year of increase in home prices.
  • Investors will continue buying properties  but at a lesser pace. The vast majority of investors who own their homes see owning property as "important" or "critical" to building wealth.
  • The 2016 housing market is expected to be a picture of solid but lower growth of about 9% due to higher mortgage rates, continuing tight credit standards and low inventory. This indicates a trend for a normal but healthy market.
 The question is what should sellers and buyers do?
Historically the longest lasting expansion or cycle has been 8 years, which means that the market will probably start slowing down in 2018.
For sellers If you are planning to sell your home in the next 2 years you may want to think about selling it soon so you are not selling in a down cycle.
For buyers, if you plan to stay in your house more than 5 years, you may want to consider buying now before prices and interest rates go higher.
Please share my 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 details the dynamics of the local market and when is the best time to sell or buy a home.

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