This is a logical question in the rest of the world, but living on the Monterey Peninsula Coastline, is a very special place. My training broker told me once, we sell "air". I couldn't understand what he was saying at the time, but it's true. We have wonderful weather. Many people from warm climates love to come here to cool off and sit by the fire on any given evening. The lot is the most important part of what you are purchasing. Just having that space to step out in the morning, breathing cool sea air and walking along the beach line. It's pretty great place to enjoy. If you need any assistance in researching properties, I'd be pleased to assist you as I am a long time resident and know the communities well.

My best regards, Linda Shepard, REALTOR(R) 831-238-0828

Two things we don't have; snow shovels and air conditioning.

Choice in housing in Pacific Grove is more about lifestyle than about the home itself. I understand this may be less than logical, but here's what I've observed in my 20+ years of selling Pacific Grove homes: people who live in 110degree summer weather in the agricultural heartland of California have been buying Pacific Grove cottages as summer retreats forever.
If you are an agribusiness person, a small, quaint, cottage in the foggy coastal hamlet of Pacific Grove may have a great deal of appeal to you. Likewise, if you're a harried Silicon Valley exec, you might find the understated charm of Pacific Grove in the cool summer by the bay hard to resist.
In all seriousness, it's partially a discretionary marketplace and when you have cash buyers spending in excess of 1m a little "shack" for $475,000 on a large lot starts looking quite appealing.

Curt is right, the real answer is "because someone is willing to pay the price". The reason people are willing to pay these prices really has nothing to do with the house, it's the land underneath. In this particular case, the house is practically worthless, but the potential of building something new on this land is what a buyer will use to justify the price one pays.

GMB, Curt Abramson from Bailey Properties here. Because someone is willing to pay that price, and demand is high. Historically, California runs a deficit of about 250,000 fewer houses built each year than the population requires. Despite the recent downturn, this demand is likely to continue.