The number of new listings in Palo Alto has jumped 20 percent in the first quarter of this year, compared to the same period last year. Sellers listed a total of 154 homes since the beginning of 2016.
At the same time, buyers have become more selective and more willing to wait, so properties have often stayed on the market for about five days longer than last year, or about 19 days. Also, the median home price has declined by more than 5 percent.
The increase in inventory has affected both high- and low-end properties, so the price drop likely reflects a short-term mismatch between increasing supply and weakening demand. As buyers become more picky, listings not priced fairly have stayed unsold for a longer period, and tend to have their prices lowered after losing momentum. On the other hand, homes with good presentation that are priced reasonably still attract strong interest. For instance, buyers are willing to put higher-than-asking, pre-emptive, all-cash offers on good rebuilding opportunities in North Palo Alto. Moreover, tastefully updated homes in Midtown and South Palo Alto could receive multiple offers and be sold well above listing prices.
Unlike Palo Alto, Los Altos has experienced a significant decline in supply. The number of new Los Altos listings has dropped by approximately 14 percent in the first quarter of 2016 compared with the same period last year. Listings there are being sold faster, within an average of 11 days this year versus 14 days last year, while the median home price has stayed almost flat, down slightly more than 1 percent, at $2.64 million.
One reason the median home price did not increase in spite of the lower supply has been that there have been fewer transactions in the premium North Los Altos area. In fact, North Los Altos may have become the most competitive high-end sub-neighborhood in the Midpeninsula so far this year. Those buyers with a more than 3-million-dollar budget who shifted from Palo Alto to North Los Altos, expecting less competition, only found themselves trapped in accelerated bidding wars.
Menlo Park, especially central Menlo Park, has gained popularity. Despite a nearly 7 percent increase in inventory in the city as a whole, both the median home price and the sold-price-per-square-foot of living area have increased in the first quarter of this year compared with last year. The median home price for Menlo Park has reached $1.96 million. Many listings in Central Menlo Park offer large lots, updated homes and convenient locations.
Further to the south, Mountain View and Sunnyvale have continued to see strong demands from first-time home buyers. Mountain View and Sunnyvale have always been more active in number of transactions than Palo Alto, Los Altos and Menlo Park. In the first quarter this year, despite a 26 percent increase in new listings, the median home price in Mountain View has climbed to $1.35 million, up 15 percent year on year. Sunnyvale has seen the same trend with a 22 percent increase in new listings, and a 7 percent increase in the median home price versus the same period last year.
The multi-million-dollar question is whether Palo Alto serves as a leading indicator toward a down cycle of the overall real estate market in the Bay Area. From a long-term cyclical point of view, the answer is likely yes. However, there are lots of moving parts to the market. The supply and demand of real estate are also very much affected by life events that are not predictable. The value-add of a real estate professional is then largely to help clients understand the change of the market, and set expectations accordingly.