After a soft year due to the pandemic, Palo Alto's housing market is back and strong. The market is very active with more inventory and more transactions.
The bidding wars for entry-level homes (below $4 million) are back again. Due to the sudden jump in activities and home showings previously constrained by the pandemic lockdown, the market is chaotic, and buyers, especially those at the entry-level, are particularly anxious.
From the beginning of 2021 to mid-March, 160 new listings went on the market, a 25% increase from the same period last year. This increase in supply applies to both single-family homes and condo/town houses. Demand is picking up more quickly than supply, which means more sales and quicker turnarounds. As of mid-March, 110 homes — about one-quarter of the normal annual transaction volume — have exchanged hands this year. Of these homes, 85 were new inventory, and the remaining 25 were inventory from last year. The number of closed sales is almost a 60% increase from the same period last year before the pandemic hit. Condo sales also are up close to 70% compared to last year at the same time, indicating a recovery of the segment as well.
Not only are more homes selling, but they are selling more quickly: Days on market for new inventory is 11 compared to 15 during the same period last year. The number of all-cash transactions represent about 26% of all sales, compared to 21% last year. Consequently, the median price of single-family homes in Palo Alto has climbed to $3.4 million, 14% higher than 2020. The median price of all homes sold in Palo Alto this year as of mid-march also increased to $2.9 million, up from $2.7 million in 2020, which is a 7% increase. It seems that the price recovery of condos and town houses is still lagging behind single-family homes.
Bidding wars for homes below $3 million are significant. It's not rare for a home listed at $2.5 million to receive more than 20 offers and bids more than half a million dollars over asking price. For homes over $5 million, sellers still need to prove their worth, but with the price rising rapidly at the low-to-mid segments, those high-priced homes could start to look more and more attractive.
A good number of homes in the $3- to $4-million range that didn't sell last year were sold within a week this year for 10% to 15% higher than their listing prices. Such a pure apple-to-apple comparison indicates that the market has recovered significantly.
So what triggered the big surge in demand? Many successful local IPOs — such as Zoom, Bill.com and DoorDash — and the stellar performance of the NASDAQ index have created lots of wealth, which is flowing into the housing market. Moreover, the continuous soft pricing in 2019 and 2020 has made Palo Alto homes more affordable compared to the newly created wealth and thus more attractive compared to the neighboring cities. Young families continue to move to Palo Alto from neighboring cities to live in an area known for its schools and convenient access to tech jobs.
Despite its local appeal, Palo Alto has lost almost one-third of its buyer pool directly from overseas, mainly China. That part of the demand hasn't come back, yet. The pandemic, travel restrictions and the continuous tension between the world's two biggest economies have put a halt on home purchases directly from overseas, especially at the high end. Nevertheless, it also suggests a possible further upside for home prices if foreign demand returns.
With the historic low-interest rates and the booming tech economy, local demand should remain strong for the foreseeable future. There are lots of anxious buyers, especially at the entry level If one house receives 20-plus offers, 19 buyers are still actively searching. Supply is the flip side of the equation. Retirees and empty-nesters are moving out of Palo Alto as always, but there's also a big part of the supply that relies on inheritance. Proposition 19, which went into effect in February and significantly eliminates the ability for children to inherit a low tax assessment on their parents' property, will accelerate the release of those inventories into the market. With strong demand and increasing supply, we may finally see a meaningful jump in the number of transactions this year.
Xin Jiang is a real estate agent with Compass in Palo Alto. She can be emailed at [email protected].
View more stories in Spring 2021 Real Estate publication here.