Fall Real Estate 2008

Publication Date: Friday, October 10, 2008

Why are these towns different from all others?
Palo Alto, Menlo Park, Mountain View buck the national trends

When everyone from talk-show hosts to economic pundits moans about doom and gloom in the national housing market, potential homebuyers and sellers -- and their agents -- just roll their eyes.

"This is more like the reality of a real-estate market that doesn't have any outside influences, either negative or positive," said Rick Turley, president, Coldwell Banker Residential Brokerage, San Francisco/Peninsula.

"If biotech plummeted down, then you'd see for-sale signs going up [on] enough homes for the people who want to live here.

"This is business as usual," he said.

Relatively low inventory and fairly constant demand have kept prices up in this micro-market, even when the number of sales is down.

The median price of a Palo Alto home rose close to 4 percent during the first half of 2008, according to the Silicon Valley Association of Realtors (from MLS Listings Inc.). In Menlo Park, prices rose 19 percent see chart.

Median prices for condominiums soared, up close to 20 percent in Palo Alto and 18 percent in Menlo Park. While single-family home prices dropped 5 percent in Mountain View, condos held their own.

Given the concentration of high-earning people in everything from biotech to nanotech, proximity to Stanford University and Silicon Valley as employment sources, coupled with strong-reputation schools, there appear to be more people seeking houses than selling them, Turley noted.

"In 2003 to 2005 many sellers were flush, sitting on equity, so they put their homes on the market and maybe moved to Grass Valley or Spokane. [There was] no specific reason other than a lot of equity and an opportunity to do something different with their lives. We call them spec sellers, in that they don't have a life-changing event that's making them move.

"That was contagious. We've flushed all of that. Equity was almost like burning a hole in their pocket," Turley said.

John Carman, manager of the Palo Alto Coldwell Banker office, sees listings down from 38 to 45 percent in Palo Alto this year. "That's not quite true in Menlo Park or Los Altos: They had a healthy supply of inventory that continues to move," he said.

Statistics on "days on the market" (DOM) don't offer the full picture.

Average DOM in Palo Alto is close to 60 days, which includes properties that are just sitting there because they are overpriced, he added. "Those well-priced are sold within 14 days," he said.

Even within nearby towns, there are sub-markets, almost down to the neighborhood level.

Both Todd Zebb of Campi Properties, Los Altos, and Judith Hellyer, of Windermere Silicon Valley Properties, Mountain View, have noticed a spike of listings in Mountain View this year.

"Inventory has crept back up again since April," Zebb said. Hellyer sees inventory rebounding from a dip in 2007.

"Basically the market held pretty steady unless the property has big negatives," Zebb said, contrasting it with nearby Santa Clara or Sunnyvale. "Really the one reason the market stayed steady here is that inventories are relatively low, compared to a down market. A lot of sellers are not listing their homes -- they don't need to sell," he said.

Zebb pointed to many more homes on the market near U.S. Highway 101 vs. the other side of El Camino Real. "There are fewer listings there, especially in the Los Altos school district," he said, adding that for higher-end buyers (who earn more than $150,000 annually) inventory is really low, but they're still buying.

In "any prime location there's still low inventory and relatively good demand. We're not seeing price decline there," he said.

Zebb sees Mountain View as a city similar to Milpitas. "It has a little bit of everything; high-end areas near El Camino Real, low-end near 101, Moffett. It's a good example of a two-tier market where the high end is doing well," he said.

"In Mountain View we've had so much job creation, more downtown development than any other local cities. The demographic is a lot younger," he added.

And there's a lot offered at entry-level prices. Only Menlo Park could match the 48 homes offered for under $1 million in mid-September (compared to eight in Palo Alto).
Yet not everything is selling.

"There are agents sitting on houses where there should be a price reduction, but they're not staged and prepped; they didn't take sage advice. It's not to say that every home is flying off the shelves," Turley said.

Denise Simons of Alain Pinel, Palo Alto, stresses that pricing is key.

"There are out-of-the-area agents that aren't pricing realistically," she said, and some sellers who don't understand that their homes are overpriced for the location, which might include a busy street, a corner lot, backing onto a freeway or near the train tracks.

The average home buyer holds onto a house for four to seven years, Simons said.

Carman says that most buyers are from the immediate area. "Lots of people move to Palo Alto, Menlo Park because of schools, strong community, a sense of culture each one offers. We get buyers moving up from Santa Clara, Cupertino, looking for additional community programs, second or third languages, proximity to Stanford," he said.

Simons finds it hard working with people relocating from the East Coast. "What you can get there, compared to here, is hard to swallow," she said, noting that they can often afford an Eichler when what they want is a Tudor or something more similar to what they had -- or land.

But if it isn't the economy that pushes people to sell their homes, why do they?

Life changes, local real-estate agents agree, pointing to marriage, divorce, birth and death as the big motivators for moving to a larger -- or smaller -- home.

Carman finds many feel they don't need to sell, they're in the community they want, "unless something comes up that excites [them], or they have a second or third child," he said.

Although people see that this area is stable, they're still vulnerable to flashy headlines about a failing economy, Turley and Carman said. "Most everybody thinks the economy is poor and this isn't a good time to sell," Carman said.

But they must not be attending open houses, where 30 to 50 people appear at each home every weekend day, he said.

"Our clients are very well-educated, well-informed about what's on the market, the neighborhoods, the school districts, what's being taught in the schools, ratio of teacher to student. Agents have to be astute on all the details about what's happening in the community itself," he said.

Turley's advice to both buyers and sellers: "Don't show me stats from six months ago. It's a different story than the broader Bay Area real estate."

For sellers, he noted, pricing and condition are critical. "This is not a day when anything you put on the market will sell. Staging and marketing [are] critical."

But Turley doesn't want to discourage buyers. "There are opportunities out there, maybe homes that don't present as well, people who need to sell," he said.

Where agents were seeing multiple offers in the teens not that long ago, "now we see five or six." A year or two ago, a home offered for $1.6 million or $1.8 million -- solid, not extraordinary -- would get 14 offers, he said, adding, "We don't see that now."

Post-Labor Day, more houses came on the market, after what Turley called the "August facelift."

"People are hearing doom and gloom, thinking everywhere else is horrible. It's not here.

"It's a great time to sell; there's a lot of demand," Simons agreed.

 

 

 

Associate Editor Carol Blitzer can be e-mailed at cblitzer@paweekly.com.