Publication Date: Wednesday, October 8, 2003

Squeezing the market
The lows are higher and the highs are lower

by Carol Blitzer

Price a house competitively, slap a coat of paint on it and it'll sell -- quickly.

At the higher end of properties in Menlo Park is this home at 1140 Arbor Road, offered for $5.8 million in late September.

It may sound simple, but that's what local Realtors are saying this fall -- despite mid-year statistics that give a different picture. While median prices have dropped in Palo Alto, Menlo Park and Mountain View through the first half of the year, real estate agents said sales picked up over the summer. They are confident that the good sales will continue through the fall.

Just six months ago these same agents were biting their nails over a threatened war in Iraq and a diving stock market that left homebuyers on the fence. With the end of war declared and the NASDAQ rebounding, business has become brisk in homes under $1.5 million. And while it's picking up in some multi-million-dollar homes, the market in communities such as Atherton is still "correcting" for the radical rises experienced in the 1999-2000 blip.

2692 Gonzaga St., East Palo Alto

Even the uncertainty of California's gubernatorial recall election doesn't seem to be shaking Realtors' beliefs that the market is escalating -- with more sales at higher prices -- since July 1.

"It's not my view that prices have turned down. We are seeing multiple offers around a million," noted Jim Nappo, an agent with Alain Pinel, who covers Mountain View, Los Altos and Palo Alto. "Even though interest rates have turned up, (buyers) seem to be jumping in."

2052 Menalto Ave., Menlo Park

Several agreed that rising interest rates have a stronger affect on the lower end of the market -- say under $1.5 million. That's because the IRS deduction on home mortgage interest is limited to interest on $1.1 million, said Coldwell Banker agent Steve Bellumori.

533 Devonshire Court, Mountain View

"In general, if someone is buying a home for $2 million or greater, fill the difference in with cash or stock security. The higher the price over the $1.1 amount, the more cash or stock needed, so a slowing in that range is absolutely understandable due to the previous softening in the stock market.

11 Primrose Way, Palo Alto

"That's why this continual strengthening of the NASDAQ is important as it not only creates more stock security, but also is an outward sign of consumer confidence," he said.

He sees two things impacting the market in the last quarter -- a slowly improving NASDAQ, possibly cresting at 2000 points, and rising interest rates that could take some people out of the lower end of the market.

Alain Pinel agent Monica Corman, who works out of the Menlo Park office and sells in the ring around Stanford, found the continued low interest rates a factor in last spring's activity -- despite a war. "As soon as the conflict more or less ended, the spring market started to take off, and we saw more in the high end," she said.

1105 Fremont Ave., Los Altos

Since July of 2002, prices had been coming down, but they're rebounding.
"Now that interest rates have gone up a little, I think prices will be flat or slightly lower. ... But activity is very strong. There's so much interest in real estate. People are afraid they'll miss the window," she added.

As usual -- with the exception of the blip between early 1999 and mid-2000 -- it takes longer to sell homes on the higher end.

7 Sandstone St., Portola Valley

"The multi-million-dollar homes are suffering," Nappo said. "The inventory seems to be growing. They're on the market longer and there are more of them."

Some are attempting to lure buyers by dropping prices. Two high-end properties in Palo Alto -- including the historic Pedro de Lemos estate on Waverley Oaks Court -- have dipped under $8 million, from highs closer to $10 million a few months ago.

Even those in the middle have nodded to the market. SummerHill homes that were expected to be offered at $2 to $3.5 million in 2002 have sold recently at reduced prices, according to a recent homebuyer. SummerHill Homes, which currently has three of the 12 completed new homes available (and one renovated historic home that's being used as its sales office), declined to comment. So what sells?

"It's all about price. Period," said Tom Hilligoss of Encore Property, Menlo Park.

He sees properties moving quickly when there are no contingencies and the deals are all cash, with loans pre-approved and appraisals realistic.

633 Old La Honda Road, Woodside

"The fact is, buyers are looking for value, unlike the buyers from three years ago. They're sophisticated," noted Nappo. "When a seller's contemplating a sale, and sees that only one or two homes in their area are selling, they have to appear to be the best value."

He suggests that owners of multi-million-dollar homes are still thinking they can get the same prices as a few years ago and are resistant to lowering the prices. But look at Atherton, he said. "Atherton is down at least half from the peak. Los Altos Hills, Woodside, Portola Valley are down at least 40 percent," he added, noting that he's trying to price homes to be attractive so they will attract multiple offers.

Coldwell Banker agent Tom LeMieux, who tracks four areas of Atherton and west Menlo Park, said sales in general have improved. In fact, if the sales rate continues at the same pace as it has through August, home sales in Atherton will end up about 15 percent higher, and in Menlo Park 24 percent higher.

At the entry-level to Palo Alto's housing market is this one-bedroom, one-bath cottage at 1220 College Ave., listed for $449,000 in late September.

Although more homes are moving, it's not at the upper end, he added. Looking at the marketplace since 1999, homes above $4 million have accounted for more than 20 percent of the Atherton market, he said. But, this year they're on track to be closer to 12 percent of sales, with only nine sales since January.

"The upper end of the market is still compressing. You see a higher percentage of sales in lower price ranges.

"It's not fair to say we're in a bad market. It looks like a healthy year-over-year increase, but it's where the sales are happening. The same applies in Menlo Park, only not as dramatic," he added. "It's sort of a divided market."

Why does Woodside stand out as the one high-end community that's going up?

"With the stock market recovering, then those who have the cash, the big buyers out there who've been waiting for an opportunity, have chosen to start that activity in Woodside. Sales have been wonderful and startling," said Hilligoss, adding that "the same people who were selling in spring 2000 that began the bursting of the bubble, are back acquiring again."

Even going up, prices in Woodside are nowhere near the top. "In fact," he said, "they've come down substantially since the peak, but the peak was vapor. ... (If you) look from early 1998, they're all up," if you eliminate that 99-00 blip.

Coldwell Banker Realtor Paul Engel has a slightly different take. He thinks if it looks sharp, it'll go.

The most expensive homes listed in Mountain View at $1,395,000 - 1166 Spencer Court - is a two-story contemporary with four bedrooms and two baths.

"By and large, people like to see properties that are staged these days -- of course, light and bright. I have a client where the kitchen is dark, so we'll paint the cabinets.

"Pools are a mixed bag. Some have gotten estimates to fill them in, but that's not a show stopper. People still like bright, remodeled kitchens and bathrooms. They like the ambience of family rooms where they can sit around and watch people cook," he said, adding that he saw a couple of older homes on tour recently with older tiles in the bathroom. "Match up the towels and they stand a much better chance of being sold than those left vacant," he added. "It gives them that extra shot, seeing what a place could look like."

"The numbers are nowhere near where they were three years ago, but they're healthy just the same," said Bellumori, pointing to 34 recent sales of more than $2 million in Menlo Park, Palo Alto and Los Altos (plus 58 more in the higher-end communities).

In early September, Bellumori listed six new town homes in a planned unit development in Redwood City, ranging from $699,000 to $739,000. "Activity was non-stop. We had more than 200 people through the first open house. If anyone doubts that the buyers are out there, they should have been there."

Carol Blitzer is an assistant editor for the Weekly. She can be e-mailed at cblitzer@paweekly.com.

"The upper end of the market is still compressing. You see a higher percentage of sales in lower price ranges." -- Coldwell Banker agent Tom LeMieux

"It's not fair to say we're in a bad market. It looks like a healthy year-over-year increase, but it's where the sales are happening. ... It's sort of a divided market." -- Coldwell Banker agent Tom LeMieux

" Now that interest rates have gone up a little, I think prices will be flat or slightly lower. ... But activity is very strong. There's so much interest in real estate. People are afraid they'll miss the window." -- Alain Pinel agent Monica Corman