Since condos tend to be at the lower end of the market (there are exceptions), buyers tend to be less diversified, so the stock market downturn is hitting them harder than buyers in higher price ranges who may have equity from the sale of an existing home.
With the current climate of uncertainty, prices are going to continue to stagnate and drift lower, especially over the holidays until we see a strengthening of the economy and a return of consumer confidence. Real estate is a long-term play, and in the 5 year and beyond range, you can expect appreciation. When we have downturns however, condos drop more quickly than townhomes or single-family homes.
You can see current market stats for area condos (including Los Altos) here: http://www.ventouxhomes.com/CustomContent.aspx?ID=2791&fp=1974
You can also sign up for FREE reports on the Los Altos condo market, and market data on other area communities at http://www.REMarketReports.com. Just select, Los Altos, condos, and if you want the summary or complete report.
You can also reach me at: Chris@VentouxHomes.com
In my opinion, Chris is correct - over the next 12 months due to current poor economic conditions, I believe property values in Palo Alto will be flat to slightly downward.
Lower cost areas on the Peninsula will see more downward pressure on prices.
I disagree with Chris a little as to what portion of the market will suffer more and why.
In my opinion, the drop in stock values will effect higher priced properties to a greater degree than lower priced properties like condominiums. $2M, $3M and $4M properties are purchased with equity from a prior property and stock money - typically the downpayments on these properties are well over 50%.
Lower priced properties are typically purchased with 10% to 20% down so the cash requirements are much lower and therefore the loan is a bigger percentage of the total sales price - so buyer income becomes a bigger factor than having lots of cash. You do not need lots of cash to buy a $600,000 condo, you need lots of cash to buy a $3M home.
Another factor to consider is that many condominium purchases are intended as "stepping stones" to the purchase of a single family house in the future. This is more true in an appreciating market where a buyer feels values are appreciating and so there is urgency to get some piece of the market by buying. With appreciation overl several years, the condo buyer can sell and the sale will generate a larger downpayment. The idea here is that the condo will appreciate faster than the buyer could save cash over the same time period so the purchase of the condo provides a stepping stone to purchase a single family home. Of course income needs to go up over this time to handle a bigger loan required to move up in price range. When the market is flat or going down, the "stepping stone" idea does not work as well.
When prices are going up buyers will buy now in hopes of making their chances better to buy what they truely want in the future. In the current market (flat to slightly down), there is less reason to buy a condo as a stepping stone since if the value drops, the equity decreases which defeats the whole purchase of building equity by owning a smaller property to begin wtih.
Hppe this makes sense, if not please let me know.
I agree with your view on real estate in palo alto. I am actually a prospective buyer in the $3M range, but believe a correction is due in this price segment. I am currently renting until I get visibility to pricing in this range.
In your estimation, how much could these homes fall if there is a prolonged downturn in silicon valley? The most credible reports I see on semiconductor sales activity predict a slowdown through Q3 2010. Thus if stock equity is under pressure for ~2 years, how much would you expect Palo Alto to fall? I am willing to pay $3M but want to purchase a home at fair price from an appreciation historical context.
Although prices in the Bay area have dropped significantly, you own a condo in one of the least affected towns in the Bay area. It is true that Palo Alto has seen a recent rise in listings and will take longer to sell, but there will aways be a demand for homes in Palo Alto. It is always location, location, location and there are buyers out there for your condo who is willing and able to pay a good price. Please give me a call 650-714-3480 or visit my website if you'd like more information in selling your home now or in the future.
Marilyn Harrison, Realtor
Peninsula Neighborhood Specialist