The strength of our local housing market in 2015 was unprecedented. Competition has remained strong in our area and the imbalance between supply and demand has bid up home prices to new records. The lack of inventory has continued to be the challenge to a more balanced market.
The number of houses sold annually continues to decline. Last year, 311 houses sold in Palo Alto (compared to 356 in 2014), 295 houses in Menlo Park (compared to 356 in 2014) and 69 houses in Atherton (compared to 100 in 2014).
The median sale price for a single family home in Palo Alto increased 11.4 percent to a new record high of $2,684,000 (compared to $2,410,000 for last year). The sale-to-list price ratio was 112.5 percent and average days-on-market was 18 days. The highest sale in Palo Alto was 1950 Cowper Street in Old Palo Alto, which sold in a private sale at $30 million.
For Menlo Park the median sale price increased 8 percent (from $1,875,000 to $2,025,000 in 2015). The sale-to-list price ratio was 107.6 percent and average days-on-market was 19 days.
For Atherton the median sale price increased an amazing 34.62 percent (from $4,420,000 to $5,950,000). The sale-to-list price ratio was 101.3 percent and average days-on-market was 52 days. The highest sale on MLS in Atherton was 119 Tuscaloosa Avenue, which sold at $35,300,000. It is important to note that Atherton is having more private sales than any other town in the area.
Townhouse and condo market prices in Palo Alto had a surge of 16.4 percent for 2015 with a median price of $1,455,000 compared to $1,250,000 last year. In Menlo Park the surge was 16.4 percent for a median price of $1,420,000 up from $1,200,000 in 2014.
The presence of Chinese buyers diminished in our local market in the fourth quarter, scared off by stock-market selloff, slowing economic growth, currency devaluation, tightened restrictions on capital outflows and higher prices in the housing market. In mid-December, China's benchmark stock index fell by 5.5 percent, its biggest daily slide since August, as Beijing authorities stepped up a crackdown on the securities industry.
According to real estate experts, the national housing market on the whole is expected to cool off in two years. While some are worried about localized real estate bubbles, it is clear that there are no signs of a return to the conditions that caused the last national bubble. Tighter lending restrictions today mean that buyers are not getting loans they realistically can't pay back as in years past. Therefore there is no danger of a severe crash like the one we saw from the last decade.
So here is my outlook for 2016:
For generations, a healthy housing market has been central to the growth and prosperity of the American economy. As long as the job market is strong, the demand for housing will remain strong.
The average 30-year, fixed mortgage interest rates is expected to rise only slightly to 5.1 percent by the end of 2016 but will still remain at historically low levels. For a few key demographic groups, including current renters and younger would-be buyers, rising interest rates could lead to changes in their home buying plans. But overall, a modest increase in mortgage interest rates is unlikely to completely derail most buyers' plans.
The economy is growing faster than the development of new housing. Inventory remains a primary concern.
Housing affordability is an issue and will keep a high percentage of younger buyers out of the market because their income has not caught up with the strong year-after-year increase in home prices.
Investors will continue buying properties but at a lesser pace. The vast majority of investors who own their homes see owning property as "important" or "critical" to building wealth.
The 2016 housing market is expected to be a picture of solid but lower growth of about 9 percent due to higher mortgage rates, continuing tight credit standards and low inventory. This indicates a trend for a normal but healthy market.
What does this all mean for buyers and sellers?
Historically the longest lasting expansion or cycle has been eight years, which means that the market will probably start slowing down in 2018.
For sellers, if you are planning to sell your home in the next two years, you may want to think about selling soon so you are not selling in a down cycle.
For buyers, if you plan to stay in your house more than five years, you may want to consider buying now before prices and interest rates go higher.