Amid all the current bad real estate news, with mortgage companies going bankrupt, Foxton’s closing shop, foreclosure rates rising, a liquidity crunch in the credit market, people can certainly be forgiven for thinking the sky is falling — especially if their little corner of the real estate world really is suffering.
Meanwhile, back in our little insulated corner of the world here in Palo Alto, prices remain strong, with the median price point having risen ten twenty thirty thirty-five percent year on year. Yes, that’s thirty-five, as in the number found between thirty-four and thirty-six. Hard to believe, but no less true for it:
(Skeptics will of course pounce on the slight drop from the high of $2.4M a month ago to where we are now — $2.35M — as evidence that — finally — Palo Alto home prices will begin to obey the same rules of gravity that apply elsewhere. I believe it’s more likely to be a seasonal thing rather than an indication of impending doom for our market.)
Not only is the overall market doing well, but every quartile is actually pulling its weight, with the top quartile doing particularly well of late:
Median prices, of course, are not the whole picture. Inventory, for example, is well below what you would expect for this time of year: a year ago at this time, there were 80 homes on the market, while now we’re just short of 50:
Our neighbors to the north in Redwood City, meanwhile, are showing a different story. Median prices are down, way down…
…and inventory levels are up, way up:
But again, that’s not the complete story. Observe…first, the lower two quartiles are indeed hurting…
…but the top two quartiles are holding their own quite well, thank you very much:
What’s the explanation for all this? Why is Palo Alto and the upper half of the Redwood City market doing so well, while the lower half of Redwood City is hurting? Friend, top broker, and colleague ex-colleague Steve TenBroeck (the “Steve” in the “Jeff and Steve” team) explains it thus:
Home owners in Palo Alto learn from the Merc and the Chron that the market is bad and decide maybe now ain’t a good time to sell. But, no worries — they don’t have to sell. Their mortgage, while high, ain’t killing them. They didn’t get an adjustable rate mortgage, so their payments aren’t skyrocketing. Owning a home isn’t causing them any cash flow problems.
Similar reasoning holds for the upper half of the Redwood City market. In the lower half, however, homeowners are hearing that the market is bad, and they’re personally experiencing it: their adjustable rate sub-prime mortgages are resetting soon, and their cash flow problems are about to become worse. Many don’t have the luxury of waiting for next year to sell. They have to sell now.
The lesson? Real estate is local, very, very, very local.
Tags: Consumer, Palo Alto, Redwood City, Steve TenBroeck
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?RE: Any thoughts on the feds (in)activity this morning?? August 5 at 9:46 pm 
�Good news, your equity line and business line of credit rates remain the same as yesterday, as the Fed held short-term rates steady today. Why? Because despite unemployment concerns, the economy is doing fine (1.4% growth year to date-- thank you exports!), core inflation is under control at this point, gas prices have dropped over 6% recently and it's more prudent to maintain a steady helm when the economy appears relatively balanced. Eric T. Trailer, Principal
7 responses so far ↓
1 Chris Iverson, Realtor // Oct 6, 2007 at 7:32 am
Kevin,
Looks like Adam Smith’s invisible hand continues to be active in Palo Alto. Looking back over the last three years, we see this is the norm in Palo Alto, the number of homes for sale continue to be unusually low for the population.
There is another factor at work here. If you sell your median home in Palo Alto for a median price of $2.35M, where do you go?
Additionally, the trend of knocking down homes priced in the lower quartiles, and rebuilding on those lots with new homes priced in the upper quartiles is responsible for some of the results you are seeing. A 50 year old Eichler that sold for $1,000,000 a year ago isn’t selling for $1,350,000 today.
As Mark Twain said: There are lies, damn lies and statistics.
That said, Palo Alto and the adjacent communities are a unique market, and real estate is very, very local. Just ask my clients looking at homes in Sunnyvale.
2 Factual versus Actual: The Bay Area Real Estate tidal flow to the North Bay at Wine Country And Horses // Oct 9, 2007 at 9:03 am
[...] yesterday, a long time Coldwell Banker agent in Sonoma County yesterday, and shared with her the 3 Ocean’s Real Estate recent post about rapid median price apprection in Palo Alto and other selected markets in the Bay [...]
3 BJ Dowd // Oct 14, 2007 at 10:30 am
Kevin… ASKING prices are irrelevant. It’s sales prices that matter. Menlo Park median asking is way over $1mil but median sales price is $750k because few are buying.
4 Christine Kani, Mortgage Broker, Equitas Capital // Oct 16, 2007 at 9:45 am
Great article Kevin. I absolutely agree with the assessment you articulate. It is unfortunate that in the past some members of our community have been done a disservice — having either strong-armed or falsely encouraged of buying a home by ways of a neg-am mortgage….which is not resetting or abou to reset. It is indeed the members of such micro communities who are feeling much of the hurt, and are desperately trying to refinance, or sell if they can no longer qualify. Indeed, I often encourage people to look ahead and prepare for a refinance EVEN IF the mortgage has not reset if people still want to keep their homes. In this environment, it is more important than ever to ensure that buyers are not only fully qualified, and fully understand their CASH FLOW situation before moving forward to buying a home!
5 Realist // Oct 17, 2007 at 12:00 pm
According to dqnews.com today, the average price of a home sold in Palo Alto in September was $1.0 or $1.1m, depending on the zip code. If avg asking prices remain around $2.4m in PA, this tells me that realtors are not advising their clients correctly, and that many buyers are more astute readers of the market than realtors. Kevin & Christine, you’re not winning yourself any fans with your spin. Stop drinking the CAR koolaid.
6 Kevin Boer, Broker Owner, 3 Oceans Real Estate, Inc. () // Oct 17, 2007 at 9:53 pm
Hi BJ & Realist,
Thanks for dropping by. We are comparing apples to oranges: You and I are both relying on data summaries without digging into the underlying data.
Here’s what I mean:
1) The Altos Research stats that I used above are very specifically defined as follows: The rolling 90-day average of median prices of all “Active” and “Pending Continue to Show” single family homes on the MLS as of each date.
2) The DataQuick data you cite uses a very different underlying data set. As best as I can tell, DataQuick’s definition is the median sales price of all single family resales plus all condo/townhome resales plus all new construction with a close of escrow date in the four weeks preceeding 9/26/07, as recorded in county data
Completely different data sets. In addition, Data Quick seems to be confusing Palo Alto with some bits of East Palo Alto, and appears to omit the 94303 and 94304 zip codes.
Trust me, the median sales price of homes in Palo Alto is most emphatically not around $1M now.
More in a later post.
7 Jimmy Noh // Nov 3, 2007 at 5:53 pm
Problem here is if you look at what happens to high income enclaves such as Palo Alto in recessions is that these enclaves just experience a lag in price declines of two years.
This is because people dont have to sell or get adjustable mortgages but when the areas around them go down hill buyers move out of the expensive areas to adjacent areas experiencing price declines. The declines in prices in Palo Alto will come and will come very large indeed but not until next year.
Look at the historical data from past recessions.
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