1) Broad vs. Specific (entire S&P vs. 1 home)
2) Short time period. When investing in a HOME, you cannot expect a high return on investment. It is an investment that will Hedge inflation, meaning in the long term will net higher returns than inflation rates. It is risky to by a home on a short term basis bearing market conditions and cost of sale.
3) A place to live and enjoy, vs. pure monetary value
I don't get what you're looking for? A place to live? or something to invest in?
You need to look at the bigger picture, Palo Alto is a great community, with great schools, top paying jobs and top-notch neighborhoods, which makes it very desireable and it comes with a price tag to boot! It is not a stock market.
I agree with the answers below as well, certain neighborhoods demand more than others. It's all about location, location, location.
I completely agree with John Souerbry on this one. Palo Alto is a many community-ed area with varied micro-communities having greater appeal than others. This variance of appeal, as well as limited inventory in an area where homeowners can afford to wait until the market recovers before selling, creates demand for some homes while leaving others a bit colder.
As for the entire City of Palo Alto being "on fire"--that's an extremely broad statement and there are certainly homeowners within the city limits who would argue that there may be smoke, but no flames--in other words, there is certainly demand (as there is always in Palo Alto), but hysterical demand would hardly characterize any market at this time.
Schools, more than anything, influence the demand for certain homes, especially in places such as Palo Alto and Los Altos. Beyond that, access to the home and major traffic arteries, noise from surrounding areas, possible affects of Cal Train and high speed rail, and the characteristics of the neighborhood all act to place both negative and positive pricing pressures on homes that are relatively the same while being located only blocks or a mile from one another.
As to why the one owner on 865 Forest was unable to recoup the cost of the home, the story is seldom as simple as "we bought high and sold low...." While, from first blush it would appear the owners made a bad deal on the home, truth is you won't really know just by the statistics of pricing. Your Realtor or real estate professional can help you find out more about the home and what may have occurred to skew the price, if there was, indeed, a price differential.
To really get a good idea of the market in your area, you need to work with a Realtor knowledgeable in your part of town. I know that John practices in Palo Alto, as does Realtor Marcy Moyer. Both are sharp, both are very "in tune" with PA, so you might contact them directly for assistance in understanding the market in your area.
Grace Morioka, SRES
Area Pro Realty-People's Choice
If you are considering purchasing you need to look at how the numbers work for YOU. In terms of the market, look at the overall trend of a particular neighborhood and worry less about particular examples. There are always exceptions to the rules. You need to pay to live somewhere, so you must determine if purchasing makes sense for you. The numbers need to be such that you can sleep at night and feel comfortable when you get home at the end of a hard day and close the door.
All the best,
April Tavares, GRI, ASP
RealtorÂ®, DRE License #01742179
Free Santa Clara County Market Trend Reports: http://april.rereport.com
Homeowners sell for a lot of reasons. In some cases, they are under pressure to sell and they take the first offer. I'm not a sophisticated investor, but I do know that in a soft market, selling after two years is not a strategy for wealth building. Many Realtors will tell you that if you are not going to be in a house for five years, you might not build equity.
You might be aware that Mark Zuckerberg just purchased a home the 940301 zip code (Palo Alto) - maybe a sign that things have calmed down enough at Facebook that he can take care of needs like this. The previous owner of Zuckerberg's house made $1 million on the sale.
I do agree with you. The example you cite is brutal.
PML of Longmont, CO
You calculus for cash buyers can actually work in the other direction. Say you have a liquid net worth >$10,000,000. This will qualify you for a collaterized portolio loan interest rate < 1.4%. Thus you can borrow the cost of the home, purchase it cash, and still keep your portfolio working for you. Assuming you parked the money in an index fund, you would end up with a net > $25K per month appreciation, and you still get to live in the house you (presumably) like.
In general, people structure bond portfolios to arbitrage the low interest rate and pay down the outstanding loan balance with the extra income. Such loans are not margin loans, have usually 1 year lock outs and can refinance at will at any time. After all you can always just pay cash for the home if the environment changes.
This is not necessarily for the faint of heart, but many people in the valley finance their home purchases in a similar fashion. Comes down to interest rate risk management.
Your point, however, that housing is not a good investment is sound. It generally isn't. However, once you accept this reality, you can plan your finances to support the lifestyle you are comfortable with.
I agree with a lot of the Realtors below that it's necessary to get down to the community and location to determine the selling characteristics. But I would also add that financing plays a role in all of this. Until recently there has not been a reliable source of financing at competitive rates by which buyers in the $900K range and up could finance their purchases. I don't know the facts about Palo Alto, but here in Marin County the market segments as defined by purchase price (and to my logic, financing) exhibit very different dynamics in terms of days on market and final price to original price.
That being said, any blanket statement ("Palo Alto is on fire") implying that simply because a property is located in Palo Alto means that any listing price will be overbid reflects a lack of understanding about how the real estate market works. As ad copy, this may be defended as a kind of "puffery," used for purposes of attracting listings.
Each real property has a unique set of characteristics and must be evaluated on an individual basis. A real property is not a security (e.g., a stock), as Terri has pointed out.
In your position as both buyer and seller, you can maximize your benefits by means of a realistic assessment of market data. A good agent can suggest strategies that will work in your favor.
Pacific Century Realty
Listing Commissions as Low as 1%
Buyer Rebates to 50%
Only you can determine if home ownership makes sense for you. Work with a trusted Realtor to get the information you need on each property you are considering for purchase.
All the best to you.