Why are so few Palo Alto homes on the market?

By Marie Wang and Kevin Mo

Palo Alto homeowners who want to downsize face two challenges: finding a smaller home in the city and avoiding a steep increase in property taxes when they sell. 

In the past 12 months ending Sept. 30, about 414 single-family homes in Palo Alto sold through the regional multiple listing service, according to closed-sale records from MLSListings. The Census Bureau estimates that the city has about 16,800 detached houses. That means roughly one out of every 40 detached homes in Palo Alto sells each year.  

That figure is an estimate: It excludes private sales that don’t go through the MLS, and some detached homes are rentals. In calendar 2025, 403 single-family homes sold, according to the same record 

The sales figures also reflect a competitive market among buyers able to afford Palo Alto homes. In the third quarter, the median sale price was $4.2 million, and homes sold in a typical nine days. Sale prices were 107.6% of original asking prices, and 36.9% of sales were all-cash, according to the same records. 

Owners, meanwhile, tend to stay put. In the Census Bureau’s American Community Survey (2020–2024 five-year estimates), the typical Palo Alto homeowner moved in around 2004, compared with 2008 countywide and 2010 statewide. About 23% of  Palo Alto homeowners have lived in their homes since before 1990, versus about 15% statewide. About 39% of  these households were headed by someone 65 or older, versus about 34% statewide.

How property taxes affect moving

The usual explanation for why longtime homeowners stay put is Proposition 13. Under the law, property is taxed at 1% of assessed value plus voter-approved local bond rates. Assessed value can rise no more than 2% a year, and property is reassessed only when ownership changes or new construction is completed. The state Board of Equalization says longtime owners “tend to have markedly lower tax liability than recent purchasers.” For many longtime owners, selling can mean giving up that tax advantage.

Proposition 13 isn’t the only law affecting property taxes when homeowners move. Propositions 60 and 90, and later Proposition 19, created a way for some homeowners to transfer their existing assessed value to a replacement home, potentially avoiding a sharp increase in property taxes. 

Propositions 60 and 90 allowed homeowners 55 and older to transfer the assessed value of their primary residence to a replacement home of equal or lesser value, generally within the same county or, in some cases, another participating county. Homeowners could use the transfer only once.

Proposition 19, which took effect in 2021, expanded that option statewide and allows qualifying homeowners to transfer their assessed value up to three times. The transfer is available not only to homeowners 55 and older but also to certain disabled homeowners and victims of wildfires or other natural disasters. Proposition 19 also allows homeowners to buy a more expensive replacement home, with the difference added to the transferred assessed value.

The replacement must generally be bought or built within two years of the sale. If it is worth no more than the original home, the original assessed value can transfer unchanged. If the replacement is worth more, the difference is added to the transferred assessed value. 

A move within Palo Alto can qualify: An owner who sells a large house and buys a smaller, less expensive one across town may be able to transfer the home’s existing assessed value. 

Finding a smaller home in Palo Alto

For homeowners who qualify for the tax transfer, the question is whether they can find a suitable smaller home.

Of roughly 14,200 owner-occupied homes in Palo Alto, 86% are detached houses, according to the same Census survey. The remaining 14%, or about 1 in 7, are attached homes or units in multifamily buildings, mostly townhouses and condominiums. Across Santa Clara County, that share of owner-occupied homes is nearly 1 in 5.

Of about 8,600 occupied homes in buildings with two or more units, roughly 6 in 7 are occupied by renters.

Residents see the gap. In the city’s 2025 community survey, conducted by Polco, only about 1 in 4 residents rated Palo Alto’s variety of housing options positively, a result the report places below national benchmarks. The same survey found about 8 in 10 residents likely to remain in the city for the next five years.

The figures point to a mismatch: Many Palo Alto residents intend to stay in the city, and some longtime homeowners can transfer their assessed value when they move, but the city has relatively few smaller homes available for purchase. That may help explain why so many owners remain in their existing homes.

What the city could do

Expanding options for homeowners who want to downsize will take more than making it easier to transfer property tax assessments. The city also needs to understand demand and make more ownership options available. 

First, measure demand and publish supply. The next city community survey could ask whether residents would move to a smaller Palo Alto home if a suitable one existed. The housing element progress report the city files with the state each April 1 already records, project by project, whether new homes are planned for owners or renters and what type of building they are in. A plain summary would show residents how many newly approved homes are intended for ownership and what types of buildings they are in.

Second, make permits for accessory dwelling units and junior ADUs quick and predictable. State law gives cities 60 days to approve or deny a complete application; the city could publish its actual turnaround times. For owners who would rather stay put, a smaller unit on their own lot, for themselves, a caregiver or a relative, is one of the few ways to age in place.

Third, partner with the Santa Clara County Assessor’s Office on a plain-language Prop 19 session, at a library or online. The current rules are less than six years old and easy to misread; one session could clear them up before owners decide anything.

None of this tells anyone to sell. Residents who want to stay in their homes should be able to. Residents who want something smaller should be able to find it without leaving town. But the city’s housing mix suggests that options for those looking to downsize are limited.

This guest column was written by real estate professionals Marie Wang and Kevin Mo, co-founders of MK Group, a brokerage team focused on the Peninsula and South Bay luxury market.