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Realtor Dan Dykwel recently sent out 1,000 letters in search of a Palo Alto house for a client ready to spend $2 million or more. But he didn’t find anything suitable. Demand was too high and the market too busy to uncover the perfect property, so he’ll keep looking, said Mr. Dykwel, who works with Alain Pinel.
National financial crisis or no, the wealthy enclave of the Midpeninsula will continue to experience high property demand and steady prices, Realtors and financial advisers said this week.
Crucial, unchanging factors protect local property values from the housing slump affecting the rest of the nation, they said.
“All the things that define Palo Alto are still there and there’s still a lot of demand for it. It’s incredibly resilient,” Mr. Dykwel said.
First, land is scarce. In contrast to the miles of tract housing cozying up to foothills and grassy outskirts in the far-flung sprawl of Tracy and Manteca, the Palo Alto area has no room for major new development, according to Steve Bellumori, a Menlo Park-based agent for Coldwell Banker.
“Always the bottom line is lack of land. That’s why you see so many houses torn down and rebuilt,” he said.
The Peninsula being, well, a peninsula, restricts supply in the face of high demand, propping up prices even in tough economic times, Mr. Bellumori and colleagues said.
Second, school districts remain a big draw, they said. With test scores consistently among the best in the state, the Midpeninsula attracts families looking for good education, regardless of the Dow Jones Industrial Average.
Third, according to Mr. Bellumori, is an unshakeable local optimism. An East Coaster by birth, the Realtor said he’s consistently incredulous about the upbeat attitude in the Valley.
“Even when this economy went totally splat after the Nasdaq crash [of 2001], there’s an optimism here that’s hard to duplicate.” Maybe it’s all the entrepreneurs who have dreamed big ideas into profitable reality — and therefore intimately know the power of positive thinking, he speculated.
So far, there’s no undercurrent of panic in the area, according to Realtors.
“I’m not getting a sense of fear,” Mr. Dykwel said.
But that doesn’t mean the area won’t be affected by larger market troubles. The credit crunch could make loans harder to get and more expensive, real estate agents warned.
But they stopped short of saying prices would ever dip. Mr. Bellumori said they might flat-line for a time, rather than growing. Tracie Southerland, a financial adviser with Opes Advisors, didn’t even go that far. Prices would continue to appreciate — just not as fast, the Palo Alto-based consultant said.
Whichever sort of slowdown happens, its roots lie months back, experts said. For the previous half year, loans have been harder to get as lenders tighten their belts, they said.
Mr. Bellumori described trying to secure a loan for clients with good credit and well-appraised property. As in the past, he thought it would take three days for the bank to approve the paperwork. He was surprised when it took more than three weeks.
“There was no risk to the lender. They just didn’t know if they wanted to lend, period.” That hesitation from banks and other institutions will only get worse if the credit freeze continues, he said.
As lenders weathering a shaky market seek more security on their loans, interest rates and down payments have also crept up.
“A year ago you could buy a house for a million dollars and put nothing down,” Ms. Southerland said, referring to the pre-mortgage-meltdown period. Now, on so-called jumbo loans of $729,000 or more, the rate has generally gone up from 20 to 25 percent down, she said.
Non-jumbo loans may also command higher interest rates, and lenders may scrutinize transactions more carefully, asking for a second appraisal of a given property, she said.
Because getting equity lines of credit on already-owned homes has gotten tougher, Mr. Dykwel has noticed an increased number of buyers who simply buy new houses in cash before they close the sale of their current homes, he said.
Looking ahead, Mr. Bellumori and Ms. Southerland said local residents with large financial-market investments may pull back from new home purchases if their portfolios are weakened by the current string of bank failures and stock slides.
Such investors generally drive the upper end of the market of $3 million to $15 million purchases, typically in cash, Mr. Bellumori said. If they stop buying, the median home price could taper off for a time, before accelerating once more when markets rebound, he predicted.
As the economic environment gets a bit chillier, even local houses are taking longer to sell – up from between one and 14 days to sometimes a month or more, property brokers said.
Yet a slightly less fervid climate in the usually red-hot local market still leaves the area with eye-popping demand.
“Previously, if it took more than two weeks, you panicked and as an agent you said, ‘Oh my god! What’s going on?'” Mr. Dykwel said. “Which is so unrealistic if you look at other markets,” he continued. “Now we’re seeing 30 days, 40 days.”
Houses sitting for sale for longer than a couple weeks is still speedier than elsewhere, Mr. Bellumori agreed. A great property could take six months or a year to sell in parts of Pennsylvania, he said.
What’s going on is nothing new, he added. The savings and loan crisis of about two decades ago was also caused by shoddy lending practices.
“It’s pretty astounding. … The lending didn’t learn its lesson in the early 90s and here we are again. … Look around. Everyone wants to live better, but you can’t live only on credit,” he said.
