Fall Real Estate 2000

Publication Date: Wednesday, Sept. 20, 2000 & Friday, Sept. 22, 2000

It's a seller's market It's a seller's market (September 22, 2000)

Prices haven't leveled off yet as buyers compete in a hot market

by Carol Blitzer

It's business as usual in the local real estate market.

That means prices are up, inventory is down, multiple bids are common, and there's no end in sight.

"People are dreaming if they think things will level out," said R. Brendan Leary, an agent with Coldwell Banker, Palo Alto. "Prices are staggering."

Leary has seen prices in some areas rise as much as 40 percent this year. This has not been his imagination.

PALO ALTO HOME DEMOLITIONS
1995 72
1996 79
1997 73
1998 73
1999 57
2000 86*
* Through Aug. 28
(During same period, excluding 2000, 274 homes went through “Major Remodels,” defined as exceeding $100,000 in cost.) (Source: City of Palo Alto, Planning Department)

According to Tom LeMieux, Coldwell Banker, Menlo Park, "sellers have the upper hand. We had a frenzied first quarter with multiple offers and prices bid up at high levels."

Then the technology index (NASDAQ) got volatile, and affected the real estate market. "This took the confidence out of the market," he said, noting that lately the market seems to have stabilized and the NASDAQ has topped 4,000 once more.

"Despite the volatility, we didn't see any prices decrease significantly. Some properties were withdrawn, there were some price reductions, but people had too high expectations," he added.

There has not been a balance between buyers and sellers since 1995, said Alain Pinel, now a senior vice president for Coldwell Banker. Since then, "We've seen the market warm up together with the stock market. NASDAQ drives the prices in regional marketplaces.

"The area is only so big. There's no room to grow. A lot want in and few want out," he added.

When there are two to three times more buyers than sellers, it causes the market to be nervous and creates multiple offers and bidding wars, he said. "I'm not sure if this will end soon," he added.

But, he believes that one cannot look to the past to predict the future. In the late '80s the real estate market was very strong, but competition from Asia in the high-tech industry was fierce. "Yet a lot of people wanted to buy. There was nothing objective to justify the healthy real estate market," he said.

Such cycles are largely gone, he posed, and "U.S. industry--telecommunication, multimedia, high-tech--is alive and kicking. We are way ahead of the rest of the world. We are producing income and keeping money to buy more local products."

"We're probably in the hottest real estate market in the world," said Ed Kahl, Coldwell Banker, Woodside. Acknowledging that it does ebb and flow with the NASDAQ, he added that "even though dot-coms have run into trouble, there are plenty to take their place." There are simply more people with $1 million in ready cash than there are new homes to supply them.

Instead of seeing 10 to 15 offers, houses are getting four to five, said Bonnie Newson Biorn, Alain Pinel Realtors, Menlo Park. "But properties are still going substantially over asking," she added.

Those going at a premium are what she calls "turnkey"--or ready to move in. "Everybody's so busy these days and there's a real shortage of contractors. It's more difficult to get work done," she said.

The greatest shortage in the market seems to be in "mid-level" properties--the $1.5 million to $2.5 million price point, noted Biorn. And there are not very many condominiums and townhouses, according to Howard Bloom, Seville Contempo Fine Homes and Estates, Los Altos. On Sept. 8, for example, there were exactly six condos on the market in Palo Alto, ranging from a 885-square-foot, one bedroom, one bath, for $375,000 to a 1,826-square-foot, three-bedroom, 2.5 bath for $679,000.

"Historically, Palo Alto does better than surrounding communities," Bloom said. He is still finding multiple offers--three or four, rather than nine or 10. "The amount of overbid has shrunken. It was not unusual to see someone paying 15-20 percent above asking, but not now," he added--with one major exception: downtown Palo Alto.

While working on a proposal for a $25 million property, Hugh Cornish, Coldwell Banker, Menlo Park, unearthed some interesting tidbits: In 1992, a $3.5 million high-end property sat on the market for 320 days. Today the average time on the market for comparable property is 27 days, he said.

"Things are moving faster. It's made our job easier because the time to sell is shorter, but we don't always get the chance to take the marketing plan to its full extent," he added.

Cornish sees the market leveling off some now. "Since April, the market as a whole has dropped 10-15 percent and prices have fallen. But in Old Palo Alto there's no change in price. It's a rarefied market because there's no inventory. Also Portola Valley," he added.

He cited sales in Lindenwood, off Middlefield Road in Atherton. In January 2000, a home went on the market for $2.495 million, higher than comparables at $1.5 million to $2 million. There were 11 offers, and the property was sold for $4.6 million. After the stock-market correction in April, similar properties were going for $3.2 million.

A property recently listed in the Crescent Park section of Palo Alto drew only one offer, rather than the four to six expected. But it still sold over asking, Cornish said.

"Triple A locations are still getting a lot of attention. There's a tremendous amount of money out there," Cornish said, adding that even though the average price has dropped, there's still an audience for premiere properties.

Post Labor Day, Realtors expect to see inventory increasing as people return from vacations and rush to put their homes on the market before the holidays.

"Two-thirds of sales happen January to June," said Scott Dancer, Coldwell Banker, Woodside. "This was a typical year."

Yet the stock market dip took the wind out of the real estate market's sails leading to a slow summer. "I think buyers are coming back into the market now," he added. "If inventory doesn't change, prices will go up and multiple offers will be back. Now a lot of properties are selling with one offer."

On Sept. 7, for example, there were 15 homes for sale in Woodside, ranging from $469,000 to $19 million. Nine of them were on the market for more than $3 million. A two-bedroom, one-bath cottage in Emerald Hills was offered for just over a million. A "nice family home"--four bedroom, three bath--on an acre was offered for $1.5 million, but there was a landslide in the area. And a five-bedroom home, with a pool, tennis courts and barn, was available for just under $7 million. "The difference is location and amenities. This is a country estate," Dancer said.

Advice to potential buyers

"If I were going to live in the area for a long time, I'd buy now," Dancer advised would-be buyers. If plans call for moving out in two to three years, he'd hesitate and possibly rent.

"No one wants to recognize it, but between 1989 and 1992, prices dropped 30 to 40 percent. There's no question that could happen again. Everything has a cycle and real estate is no exception. It's foolish to think prices will go up forever. In the longer term they will, if you can weather the downturns in between. There's no way to know," Dancer said.

"If you need to buy a house, you need to bite the bullet and do so," added Shirley Bailey, Alain Pinel Realtors, Los Altos. "Christmas is a great time to buy--if there's anything on the market."

"There is no bad time to put a house on the market. A home always looks best around the holidays and people have more discretionary time then," noted Biorn.

"If you are not part of that success story (no stock options) and are not benefiting from the high-tech boom, it's tough. You have to start as soon as you possibly can, anywhere in the Bay Area," advised Pinel. "It's brutally expensive not to buy."