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

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