Lending guidelines have tightened so much that a buyer needs to have excellent credit (720+), lots of cash in the bank and income to prove in order to get a loan. That's a major reason homes are sitting longer. Anyway, the debate goes on for other reasons (i.e., recession, foreclosures, etc.) .
If you are seeking to buy, do it because you have always wanted to and this is a good opportunity, but keep in mind that investors are getting smarter this time around backing loans.
Real estate economics is different from "regular" economics because the products are not all the same and demand in every area is not the same. This trend started in 2005 when homes priced $550,000 and above were affected by slower sales while homes costing less were selling in many areas. It's great to talk statistics because they are predicting factors. With real estate, cycles have typically been every 2 to 5 years and appreciation continues. The Bay Area has not been hit as hard as other less desirable areas.
It shows both median and average prices for 4 bedroom homes has increased 9 and 20% respectively. However this is based on only one sale during the Jan-Mar 08 period. There were 10 sales during the same time period in '07, indicating sales volume is going away.
More telling is that the average selling price for all homes is decreasing 4.9% with asking prices for 4+ bedrooms going down 3.6%.
If you drive down university avenue, there are a number of homes that sit empty which were on the market in '07 and never sold. My guess is that home owners in this segment can hold their prices longer or take their home of the market if there is no interest. However, inventory seems to be increasing which will drive prices down in the long run. Negotiate aggresively if you wish to buy now.
It seems some sellers and realtors are in denial concerning the market in palo alto in this price range. I've been keeping track of listings. Although average time on the market may be about a month, this is because the homes are NOT selling and the listings are removed. There are plenty of homes listed in excess of 6 months with no takers.
Also my research with the county office shows sales in the price range you mentioned to be less than 10 homes in '07.
Hope this helps,
There has always been a huge demand for homes in Palo Alto. As Mark mentioned below the number of homes sold are MUCH greater than what you've found. The important fact here is how long each home stays in the market and in the last 6 months the average days on the market for home over $3Mil is ONLY 31 days. This is what is driving the prices UP in Palo Alto.
My research shows 51 sales over $3M just since January of 2007. I would be happy to email you this list and provide my detailed real estate market report for Palo Alto. email@example.com