In Palo Alto, 2015 has been a very frustrating year for buyers. The biggest reason is limited inventory. As of Nov. 23, there had been 516 new listings this year in Palo Alto, similar to 521 listings for the same period last year, but is 29 percent less than last cycle peak in 2008 and 46 percent less than in 1998 when MLS Listings data started to be digitally available. Considering we now have multiple layers of demands, not only from local, high-tech buyers but also from buyers and investors from all over the globe, with only half of the supply versus 17 years ago no wonder competition among buyers is fierce. Consequently, median home price (all homes in Palo Alto) has reached $2.5 million so far in 2015. This is 80 percent more expensive than in 2008, and 4.7 times more expensive versus the median home price back in 1998. Moreover, for 2015 in particular, a high level of frustration is equally shared by buyers at all budget levels.
Entry-level buyers with an approximate $2 million budget have to focus on mostly the south part of Palo Alto for single-family homes. For those that are not Eichler fans or want to avoid flood zones, choices are further limited to certain areas of Midtown or Barron Park. This translated into more bidding wars in those specific neighborhoods. The median home price in Midtown has risen 24 percent so far over 2014, and much faster than the 15 percent increase overall in Palo Alto. While it all depends on what kind of homes that will be available next year, at this point, it seems that Barron Park offers some value. Few months ago, several homes with decent lot size and in a prime location of Barron Park were sold below $2.5 million. Just as other neighborhoods in Palo Alto, the community and schools of Barron Park have kept evolving in a positive direction.
If entry level is this tough, do buyers with a $4-$5 million budget have more choices and more bargaining power? The answer is no. First of all, buyers with a higher budget tend to be more particular about what kind of homes they want and accept less compromise. Secondly, even after considering the size of the neighborhoods and the pyramid shape of the demands toward the higher price range, there were substantially fewer listings in the north part of Palo Alto than in the south. For instance, south Palo Alto had the highest number of active listings so far this year at 146 versus 49 in Old Palo Alto and 29 in Crescent Park. Competitions among these financially well-established buyers are at a whole new level. It's not rare to see homes get bid up $500,000 or even $1 million over listing price. Several $4 million transactions in Crescent Park earlier this year had nine to 12 offers. Buyers at this budget point had to be patient and more flexible, including expanding searches to the premium neighborhoods of neighboring cities.
Things are not easy for even $10 million buyers in Palo Alto this year. Many of those buyers focus on Old Palo Alto, and demand a large lot (10,000-plus square feet) with good width (more than 50 feet). Average lot size of homes sold in Old Palo Alto so far this year was 7,600 square feet versus 10,000 square feet last year. The largest lot sold this year through public/on-MLS transactions was 13,355 square feet versus the couple we had with around 20,000 square feet last year. Some of the buyers have started to include Atherton, Hillsborough and Los Altos Hills into their searches. This partially explains the 26 percent jump in median home price in Atherton this year to $5.59 million, and 94027 has finally become the most expensive ZIP code, according to Forbes. Old Palo Alto and other premium neighborhoods in the Bay Area are very different communities. Buyers in this price range really need to sort out priorities to avoid buyers' remorse.
What kind of market do we expect next year? As stated in my January article, I believe that from a long-term and cyclical perspective, we've passed the peak of this seven-year super cycle in the spring of 2015. If normal seasonality (market tends to go up toward April or May) does not kick off as strong as usual, then we could be indeed in a temporary correction. Rapidly declining affordability, a strong U.S. dollar, uncertainties associated with global economy, anything can be the trigger. On the other hand, a short-term correction is actually a good thing for the healthy state of the market in the long run.