Forgot to mention that you are correct. Most of palo alto properties are funded with stock. This is simply another argument that the housing stock is overvalued. The QQQQ hasn't moved materially in the past 10 years.
Yet housing has doubled.
It is not clear to me how housing valuations can be mantained long term facing decreasing equity availability. Also interest rates also influence equity valuations. They tend to put downward pressure on stocks.
Even though most home buyers here don't rely on mortgage financing, they do rely on stock. If rates go up, stocks go down, having a more direct negative effect of buyers' liquidity and ability to purchase a home.
I was actually the listing agent for 154 Bryant in 2008. At the time the buyers bought it they wanted to be in that particular spot in Palo Alto. The house was in very poor condition but they were ok with that because they wanted that location. They made an offer before it went onto MLS for 1.080 and my client took it. This was at the end of 2007 and it closed escrow in 2008. I have not spoken to the buyers since then as I did not represent them, but I guess they decided to tear the house down and build a new one and for what ever reason they decided not to do that. If they had purchased at the end of 2008 instead of the beginning my client would have been lucky to get a million for it. With today's lending standards that house is probably not eligible for a loan and I think that even with the million dollar market improving in Palo Alto over the last 6 months it has not increased in value since the market crash. As for the corelation betwen interest rates and housing prices, you are right that it is not simple. Many of the homes here are either purchased outright, or downpayment dependent on the stock market. When the stock market is high, housing prices go up. INterest rates in 2000 were around 8% but Palo Alto home prices went up 40%, not because of easy lending money or low interest rates, but because of the stock money.
What is meaningful to people actually looking to buy (well, me at least), are paired sales. For example, those kindly provided by Marcy for the 2008-2010 period in question (e.g. 260 Wilton, flat '09-'10; 3217 Greer, down 7% '08-'10). They show the actual change in market value of specific properties. If you've got more paired sales (for properties that haven't been remodeled, expanded, etc.), let's see them.
Here are the stats showing the improvement in Palo Alto specifically.
Q1 2009 vs. Q1 2010
2 Homes sold vs. 7 homes sold
$3.163M list price vs. $3.25M list price
$3.074 sale price vs. $3.11M sale price
Q2 2009 vs. Q2 2010
13 homes sold vs. 14 homes sold
$2.98M list price vs. $3.478M list price
$3.043M sale price vs. $3.5M sale price
Even accounting for the fact that the size of the average home sold in Q2 2009 was almost 10% larger than the average home sold in 2010, the market is still trending up. The number of units sold is also trending up, as I've said before.
Sales dropped off when the meltdown was in full steam. 2009 was actually a recovery year but the media was telling a different story.
BTW, try playing with the Economist chart -- it is interactive and quite interesting to compare the US to, say, Japan, Canada and Spain.
The other shoe has yet to drop. Wait.
IMHO, even a fairly small sample is a very useful indicator of the overall market because even though there are just a few actual transactions, you can be sure that the buyers in each case looked and priced many houses.
George, come on. We are not morons, and far from generating sales leads with your self-serving "don't wait to pull the trigger" infomercial, you've nicely distinguished yourself from agents who post here that I find credible. To wit: The vertical axis on the chart you provided starts at 20, not zero, so tiny upward movements above 20 look huge. This is a classic huckster's distortion that any first year econ student learns about. Moreover, the very website for the index says "A value above 30 indicates demand is relatively robust, we call that a Seller's Market. Below 30 is a Buyer's Market. When markets fall persistently into Buyer's territory prices will likely follow." Even the 52-week high of 24.5 on you chart was well below this 30 target and the current level is even further down from that. But if you don't believe my views, here's what the index site itself concludes about the data: "This month’s housing data confirms what we’ve been saying for some time: the mini-”boom” of this spring was created by seasonal demand, with some extra help from pressure to meet deadlines for capitalizing on tax credits. Now that those are gone, buyer activity has all but come to a standstill."
George, people value and reward straightforward advice and loath being "sold". Something to think about.
I found 2 over 3 million, not 2 over 3000 sq feet. It is just a different way of looking at things. Since Mathew did the 3000 square feet + resales I thought I would go back to homes under a million for my next analysis. I will do the 1-2 million after this, and then 2-3 million dollar sales.
So: Since 2005 there have been 5 homes that have sold twice:
144 Tasso 2006 sold for $1,250,000 2009 sold for $1,000,000 as a short sale
260 Wilton 12.24.09 $903,000 8.21.10 905,000
537 Driscol 2006 884,030 5/15/10 952000
3217 Greer 2/29/08 1018000 3/29/10 950000
525 Embarcadero 6/15/05 765000 6/30/10 865000
Will someone please flag this post so that the moderator reads it.
Thanks for your kind words! This morning I looked at all the homes that sold over 3 million in the last year. I checked to see when the last sale on that home was. There were 21 sales over 3 million. Of those only one hd a resale between 2005 and 2010 and one had one from 2004 to 2010. Several were purchased in 2005-2008 and then torn down and rebuilt so that does not count, and one had a complete remodel so I did not count that one either.
510 Lincoln sold for $3,600,000 in 2004 and $4,200,000 in 2010.
1485 Bryon sold for $3,375,000 in Sept of 2005 and $3,270,000.
I will do the other price ranges over the next few days.
I don't claim any special insight, but my guess is that it is too simplistic to just mechanically link the two variables interest rates and housing prices, i.e., interest rates do affect prices, but there other factors at play that can overwhelm or contradict this.
Marcy thanks for the correction. You had me scratching my head a bit. Your explanation of the lousy market above 3M has the ring of truth to it. The friends of mine who talk most convincingly about buying or upgrading in PA are lawyers and accountants -- people with substantial income, but not the jackpot winnings of the optionees who strike it big and can afford to plunk down the cash for a $3M plus house.
I rember listening to an economist is 1998 or 1999 predicitng the stock market would hit 10,000 by 2000. Some people were skeptical, but it did hit 10,000 and above that year. Even bigger to our area was teh NASDQ hitting 5K. While the dow has been hovering aroun 10K all year, the NASDQ is no where near 5K making most pople who work here have less available cash. I know I sound like a briken record, but homes purchased with salaries and a down payment have risen in value this year, but the upper end homes, over 3 million are not worth as much now as they were in 2000, let alone in 2008. Things are better than at the end of 2008, but not much, and there is no indication of sutained growth in this segment yet, to me.
For a quick read here is a link in investopedia
with an excerpt
"Most retail investors, especially homeowners, focus on changing mortgage rates because they have a direct influence on real estate prices. However, interest rates also affect the availability of capital and the demand for investment. These capital flows influence the supply and demand for property and, as a result, they affect property prices. In addition, interest rates also affect returns on substitute investments, and prices change to stay in line with the inherent risk in real estate investments. These changes in required rates of return for real estate also vary during periods of destabilization in the credit markets. As investors foresee increased variability in future rates or increase in risk, risk premiums widen, putting increased downward pressure on property prices."
For an in depth discussion try "Irrational Exuberance" by Roberto Schiller. It is a great read. There are many studies that show interest rates and home prices are inversely correlated. Bear in mind that rates tend to rise in inflationary enviroments. Home prices also tend to rise in inflationary environment, but the point is that REAL home values drop as the cost of capital increases.
You seem unclear on how interest rates affect home prices. When rates go up, home prices come down. Your whole argument about home ownerships costs going up with rates is simply flawed. The fact that homes rates are at historic lows is an argument NOT to buy. Besides, I am guessing anyone considering a 3K sqft home in palo alto is also not sensitive to interest rates. Thus 94402 you are better off waiting to next year.
Grace you also claim homes more than $2M have gone up 28% since '08? I actually spit out my coffee when I read this. Do you have any data to support this contrarian view? I don't think any realtor here agrees with you.
Even now, Fed is reluctant to raise the rates to reality because of the fear of deeper recession.
Houses in 5-6M+ have gone down 30-40% and so have the houses in the low end market. There is no reason house prices in the 1.5-3M range will hold..
Of course I don't know the future for sure. Theory can be unlike reality. It all depends on buyer/seller behavior and rationality...
I understand historical data is not a guarantee of future performance. But your data proved that most agents were wrong. The data showed that Palo Alto is not an exception. Majority of people who bought during that period lost Money.
Some agents like Marcy even manipulated her data by ridding of those ugly losses just so she can continue to feed into people's greed about buying houses. Other commission-hunger agents continue to preach about it's always being the best time to buy.
I am happier to wait and see. The only reason I am interested in Palo Alto is because of its schools. Somehow I am happy I opted the private school route in stead. I actually saved a lot of money and get better education for my kid doing that. Now, with the budget cut, I can even wait longer... I know interest rates will go up and naturally price will go down. If interest rates doesn't go up, that means economy will still be bad, in which case I do not have to worry about catching up with the price increases.
Vbp: I want to make sure that everyone knows I don't (because I can't) speculate about where the housing market is going. I am not an economic forecaster and it is outside the scope of my license as a Broker. I can do whatever I can to get you the data so you can make the most informed decision.
Some agents have said that the median and average have risen in Palo Alto. I agree that this has occurred over that time period; however, it is much more complicated than that. The mix of homes sold at different prices and different quality of construction can easily skew the numbers and a one or two year rise is hardly a trend worth banking on.
The threat of high interest rates is very real. It could get tougher to qualify for a loan when the interest rates start rising (if it starts climbing to 10%+) and that can seriously affect your ability to buy a home. But just because interest rates rise doesn't mean it will be impossible to buy or sell a home. My parents bought in a local luxury market in the early 80s with a 18% interest rate on their loan. Many other people back then were doing seller financing, bridge loans, or assumable loans to get the deal done. Prices were pretty nice back then too.
Buying a home, whether it is your personal residence or an investment property (e.g. rental property), will always have a risk associated with it. That's unavoidable and no one knows whether the market will go up or down tomorrow. The decision to wait or buy now will get tougher when the perfect home happens to come on the market tomorrow - you will have to do some serious thinking.
If the prices are still dropping due to over supply in your area then you can either wait or find the house you really like and negotiate hard on the price. If you find a suitably motivated seller you could get yourself a really nice house that you want to live in.
One of the biggest questions is "what is your motivation for buying?". If you are plannig on living there for the long haul, 7+ years then compare the rent V own costs. Looking at historical trends we should be out of the slump by then. Also with rates as low as they are, if its affordable to you then this could a good time.
Just wonder if it's only you and me who think the price curve is going down. Your data suggested that majority (9 out of 14) lost money when they sold the house in Palo Alto. Biggest lost is 600K. What is everyone else talking about?
Here’s a web site with more info (you probably have been there already:-)
So here’s a “little” “short story”...
While real estate markets may be local and some highly “microcosmic” our/agents use of the term is a gross misrepresentation of he statement.
Yes, real estate is a local market....tied closely to surrounding markets within “the market” effected by local and global conditions.
We are currently on the down-side of the “real estate roller coaster graph”
Are we even in the trough yet? Because we will likely be there for a long time...years.
I appreciate the info Marcy and others are sharing it helps to have those pieces when making up the larger picture.
Let me add this piece of info .
In 2006 I had taken a listing out of my area (for a current client).
It was in Salinas Ca (Smart money magazine had called it one of the most overvalued “markets” in the country in a 2005 article)
While Salinas it seemed had stalled at the top of “the ride” now facing a steep drop...
At that point in time properties were still selling with multiple offers on the west side of Gilroy...Average homes in a highly rated school system having sold in the 200k range in the mid 1990’s now selling in the high 700k
2007 - Everyone said that “our market was different” and it was....it took another year before we all had our arms up in the air riding down. Same Gilroy house now in the 400’s
“But” everyone said...” silicon valley is different” and no matter how it was explained or evidenced to the contrary almost all of the agents you would have had contact with were in complete and total denial. We can now see how “different” those markets were.
It wasn’t until coming upon discussions in Zillow/Patrick that I was able to find some voices of reason.
Trackme, if you want to purchase a home I am sure you will find the reasons to do so.
You (unlike too many) will be making an incredibly informed decision.
Take this time (and you have plenty) to find an excellent agent to work with.
After your purchase...don’t look back...enjoy your home.
All the best,
What I said is that the median and average prices rose in 2009. That's true. Q1 median/average was $1.28M and $1.45M and the Q4 median/average was $1.37 and $1.55M.
The peak in Palo Alto was actually in 2007. Here's the last 5 years stats:
Yeear / AVG / MED
2005 $1.54M / $1.3M
2006 $1.52M / $1.345M
2007 $1.87M / $1.555M
2008 $1.76M / $1.55M
2009 $1.52M / $1.33M
Based on Q1 and Q2 performance the market is on track to go close to 2008 levels. I doubt it'll match but who knows.
I do place stock in paired sales, but see your sticking to your guns that we should throw out such data when it contradicts your belief (sans data) that the market rose.
The nice thing about Trulia is that unlike referrals, meet -and-greets and the like, you can really get a sense of the approach of the realtors who participate here. I appreciate the time you've taken to post.
I'll do in-depth breakdowns for a client but not a public forum such as this.
As for why there are variances, I didn't say they were because of agents or marketing. I said those could be factors. If the overall market rises and a few don't, there must be some other factor, we just don't know what it is. However, those homes are not indicative of a trend because the rest of the market rose.
Thanks for letting me know what you're looking for. However, if you'd work with an agent with access to all the data you'd probably have everything you need in a short while. As for the insights, there have been a lot of good ones on here. Anyone who knows this market, has real buyers and sellers, networks with other high-end agents, and has seen the best and worst will tell you we're cautiously trending up. It's rapidly becoming a balanced market and will remain so for a long time. The days of irrational appreciation are gone for a long time.
I do agree with your underlying point that more paired sales give you a better sense of the overall market. Again, do you have any to share? How about for Los Altos or Los Altos Hills? Having said that, I disagree that those 6-8 homes selling twice within just a couple years are irrelevant or anomalous. Not only is it common sense to look at these, it is exactly the methodology used by Case-Shiller, which only excludes paired sales which are within 6 months of each other and actually gives lower weight to sales the further apart they are. Only a realtor would make the argument that differences between the two prices would be due to a "superstar realtor" or "marketing" and not market conditions!
As for what I'm looking for, well, it is two things: 1) as much basic paired sales data as I can get so I can judge where the market is now relative to the past and 2) some sober insights on what might influence prices going forward, not boilerplate realtor-babble.
I only went back to '09 for convenience sake.
As for comparing identical properties, there is no statistical validity to comparing such a finite number of homes when compared to the rest of the market. From a data analysis perspective, those 6-8 homes selling twice are the exception, not the rule. Let's assume they increase or decrease more than the average (and note that I posted averages, not medians), those 6-8 homes are irrelevant.
What isn't accounted for in such an analysis is why the home sold for more or less. If it sold for less, did the seller just need to dump it? If it sold for more, was the agent a superstar? Were the circumstances a "perfect storm" of demand, price, and marketing - either good or bad? There's no way to know from the data provided.
The only figures that matter are the general market stats. If the trend is sales and prices moving up, it doesn't matter if a home sold a year ago for $2M and the year before for $1.9M. If the overall market is up from the last sale by 5%, you'll pay $2.05M because that's what the buyers and agents will see.
What I'm missing from all the questions you're asking is, what do you want? Are you trying to buy something to remodel, want to remodel an existing house, or buy something new? If I knew your objective, I could give you a much better answer on what constitutes a good investment - regardless of what the market is doing.
I don't know what data sources Redfin is using but the data I'm using is all straight from the MLS. What doesn't include "off market" sales which, ironically, would actually boost the numbers since those sales are typically at the higher end of the market.
I can't make a CY '09 vs. CY '10 comparison until 2010 is over. Comparing July/August of '09 to the last two months would be possible but the trend would be similar.
I am not able to replicate your data when comparing '09 and '10 thus far. I see a price drop year over year of ~10% is $/sqft. What do you get when you compare the yearly data?
Here are some suggestions:
1. Sell your home by Grace so that she can donate $1000 to a school.
2. Buy your home by Grace so that she can donate $1000 to a school.
3. You are smart for only comparing the Q1 and Q2 data. We all knew there were a small bounce back both locally and nationally this spring. Now you know the current PA market better than many of us including Mathew and Marcy. Your statement about the appreciation now is unusual.
4. Did you forget to compare the price/square foot?
You state that sellers in the 2.5M+ range sell bit by bit as the market gets better. Do you have any data to show that homes are improving in this segment?
I have been following the market in this price range and don't see any credible evidence of appreciation. As you mentioned, sales in this range fell off a cliff.
Q1 2009 vs Q1 2010 for all of Palo Alto:
50 SFR units sold vs. 74
$1.45M vs. $1.56M (average selling price)
$1.28M vs. $1.43M (median selling price)
Q2 2009 vs. Q2 2010 for all of Palo Alto;
114 SFR units sold vs. 123
$1.56M vs. $1.68M (average selling price)
$1.37M vs. $1.47M (median selling price)
Q3 is still in process but you'll find similar results. Regardless of whether you believe the statistics are key variables or not, the fact is that the market is selling more homes at higher prices.
As for being affected by the stock market, my experience is that if you're a buyer in this price range you do not have the money designated for this purchase tied up in stock such that a 10% swing will make or break your decision. Most buyers in this price range are all or mostly cash.
What I think holds people back from spending in this price range is the fact that this segment of the market is still a buyers market. Anything over $2M in this area is still a challenge to sell, just ask those of us who have had listings in this price range. It's easy to sell a home in the $1.5M range in PA, LA, etc because those buyers are shopping for schools, are usually trade-up buyers, and there are more buyers overall. There are fewer buyers in the $2.5M+ range and most don't have to buy.
So, they wait until they see the "perfect house" (with little regard for price) or wait for the "dare to be great" deal. Since fewer and fewer sellers are willing to sell at rock bottom prices and the "wave of foreclosures" some dream of has not happened, the inventory gets sold off bit by bit as the market continues to get better.
I think it'll be a long time before that price range becomes a sellers market. However, with declining inventory I expect that the "days on market" figures will continue to drop, inventory will drop, and we'll see a balanced market with slight price increases. When is anybody's guess but I'd say within the next year.
Ironically, the euphoria that drives some of that spending may be driven by the stock market. Not because the buyers have their money in it per se, but because some analysts expect record earnings next year and that might improve general market psychology.
But I am curious about your observation that people in the higher end here aren't really affected by the stock market when it comes to real estate decisions. I know I sure am. If not the stock market (or financing) what do you think is holding people back now?
My question to anyone asking "How bad are prices in Palo Alto?" is this; Do you think Palo Alto did poorly in 2009?
Most of the "things are overpriced, don't buy now" crowd on Trulia will say that 2009 was a terrible year and Palo Alto dropped. They'd be wrong. The median price in Palo Alto rose in 2009. It was one of three luxury markets to do so, the others were Los Altos and Los Altos Hills. Sales have also risen. There have been a number of articles in the SJ Mercury this year pointing out how strong home sales have been in Palo Alto (and the rest of Silicon Valley).
Jeff Stricker made a good point, buy for the long term. There's no guarantee prices will rise next year. However, the trend is that home prices are moving up, but just slightly.
In Palo Alto over the last 20 months (to include all of 2009 and 2010 so far) there have been 86 homes sold with 3000 or more square feet. Most are a bit over 3000 and a small number are larger still. The profile for those sales is a home with 3,670 s.f. that lists for $2.804 million and sells for $2.728 million. The average days on market was 72 and the escrow was 29 days.
Where perception may be off is when listing agents price high to begin with and then drop the price to be more in line with the market to get the sale. It would be a mistake to confuse dropping the price of any or all homes with a sign that the market itself is dropping. The practice of overpricing homes and negotiating down is common in the high end. The key measures are whether or not the median and average prices are trending up, which they are.
I've sold a few homes in this price range just recently. While both buyers and sellers are somewhat cautious, the activity in the market is improving with most buyers buying with all cash or close to it. Financing is a small factor in this category, based on my experience. Stock market performance is a small factor as well. None of my clients has held back their decisions based on how the DOW is doing. Most know that we'll be trading between 10,000 and 11,000 for a while so the swings are not an issue.
If you need more detailed statistics, let me know. I have a background in analytics and am happy to help.
You must decide if you want to wait for more inventory to choose from, or will you comprise and choose from whats out there now so you can take advantage of the low interest rates. As our economy stabilizes the interest rates will go up and we shouldn't just assume things are just going to get worst.
Good Luck and if Palo Alto, Ca doesn't suit you try Springfield, Illinois many beautiful homes over 3000sqft at very affordable prices. For instance 917 West Lake Shore Dr for 1.8million and that's on 30acres with its on pond. go to http://dorisjbailey.com and check it out.