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.