There have been two noticeable trends in the Palo Alto property market this year so far. First, properties have stayed on the market longer. Second, price reductions have been more common, especially at the very high end.
Inventory is up. There have been 344 new listings in the first half of 2016, up by 19 percent, compared to the same period last year. The median price of sold homes is $2.4 million so far this year, a marginal two percent decline from $2.45 million for the same period last year. However, it is the first decline in price since the recovery of the last financial crisis in 2009.
Average days on market in the first half of 2016 has been 21.6, a whole week longer than 14.7 days in the first half of 2015, and even slightly longer than 19.2 days back in 2012. Average days on market for active or unsold listings at the end of June was 43.5 days. After getting used to homes sold within a week in the past few years, the new reality of no solid offers after the first weekend of open houses did bring uneasiness to both sellers and listing agents. After 2-4 weeks, some chose to withdraw from the market, and some reduced price aggressively.
Excluding those homes later relisted at a lower price, there have been 58 new listings in the first half of 2016 later with reduced prices, more than double the 25 for the same period last year. Price reductions happened at all price ranges. Among the 58, there were 12 with initial listing prices above $5 million, 24 with initial listing prices above $3 million, and the last 24 below $3 million. Many of these properties are still not sold.
Listing prices are normally set based on discussions between the listing agent and the seller. While a good listing agent should know the target market very well, in reality it's not always the case, especially with the subtle changes in the Palo Alto property market. This year so far, cities on the Midpeninsula have shown different trends, while Palo Alto has started to decline, North Los Altos and good neighborhoods in the South Bay have remained the subject of buyers' bidding wars.
When the market changes, sellers tend to sense it later than buyers, because most sellers get to only sell once, while buyers go through multiple attempts. In other words, lower market participation for sellers leads to less insight about the market. In this case, even if a listing agent provides accurate and updated market information, with sellers having different and higher expectations, initial listing prices still might get set higher than the current pricing curve.
When the market is declining like today, correct pricing becomes even more critical to sellers' interests. If a property is priced too high, the selling side not only eliminates a large pool of potential buyers at the beginning but also takes the risks of having to lower the price. On the other hand, if listed too low, the seller may get trapped within a price range that is much lower than what's acceptable, as writing huge premiums over listing prices is no longer the norm.
For the rest of summer, when many locals headed out for summer vacations, international buyers, especially those from China, with their kids in the local summer camps, come to shop for homes for either investment or future relocation. It's worth watching how much inventory, especially those at the high end, that international demands can help us digest. For the rest of the year, while there are still mixed signs that could lead us to different projections, the probability of an instant rebound, however, seems very low.