For Buyers, the issue is that you are facing hyper-inflation in home prices. For most buyers, prices are rising much faster than their income, resulting in dramatic reduction in purchasing power. Many of my Buyers can now only afford the home that was unacceptable a year or two ago.
A few Buyers say that they are going to wait for price to go down. I don't know anyone in the business that thinks that is going to happen. If it did, it would be due to some catastrophic financial event, in which case you are probably not going to be willing to purchase home then either.
My personal opinion is that real estate in Silicon Valley is one of the best investments in the world. Apparently the Chinese agree with me.
Go ahead and cut and paste this answer for many other Bay Area cities in addition to Palo Alto.