Question: is low inventory caused by homes sitting idle and unused? Or by people living in homes that are too big and wasteful (with the homeowners wanting to downsize but not able to)? Or by not enough housing near major employers?

It’s caused by too many people wanting to live here.

It's caused by years of the CC approving more jobs than housing for the new workers. If you keep approving 4 times as many new jobs each year as new housing units, guess what happens...... Then throw in all of the realtors touring around all-cash foreign buyers and guess what happens then....

Annnnddddddd this is why I can't live near where I work (the PA school district) :(

PA is the place you want to be. Bid high and enjoy the high-life! Don't look at the other communities. Palo Alto is the #1 best spot.

Low inventory is a very loose term.

Are their less homes on the market numerically than this time last year, this time five years ago, ten years ago? Are we talking about a low percentage to the number of total homes in Palo Alto? To me that would mean low inventory.

Or are we talking about more buyers than sellers? That does not necessarily mean low inventory to me. When we bought our home nearly 20 years ago there were a lot more buyers than sellers, but there were a lot of properties for us to look at.

Journalistic license to make people read an article without defining the actual problem doesn't help us understand what is going on.

It's bubble time - any doubt about that?

Bubbles only need a little pinprick.

It's caused by so much appreciation having occurred that long time owner's won't sell because of the tax implications. Thus, low inventory. When people die/transition, the heirs get the stepped up basis so then can sell without the astronomical taxable gain. Couple that with foreign and tech money and you have the aforementioned craziness. People are living longer and longer so fewer homes for sale.

Would love to know what percentage of these sales are to developers. I may have missed it, but there's no mention of them in the article.

>Would love to know what percentage of these sales are to developers.

and

percentage of sales to foreign cash buyers
percentage of sales to American cash buyers

"It's caused by years of the CC approving more jobs than housing for the new workers. If you keep approving 4 times as many new jobs each year as new housing units, guess what happens...... Then throw in all of the realtors touring around all-cash foreign buyers and guess what happens then...."

This. OnlineName said it all.

New jobs mean new workers. New jobs don't go to locals; they go to new people who are brought in from far and wide to fill them (along with their families). Do that by the tens of thousands for years on end, and crushing overpopulation is the inevitable result.

Looking at the names of the buyers listed under home sales column in the local papers every week and guessing what their nationality might be is interesting. From these listings it appears that on average at least two thirds of the buyers appear to be from overseas, although this of course is not foolproof in that some of these people may be American with deep roots here. Especially if their first name is westernized. Also, it is my understanding there is a growing trend for purchasing homes under the name of a company or trust to hide the nationality of the new owners so there is no way to tell. The fairly large home next to mine was bought by a company and when I tried to find out who the new owners actually were, the winding trail eventually ended up in Florida, and still no real clues. But when the new owners came to visit discovered they are from Brazil. Although most of the time it is either empty or rented for a few days at a time for about $500 a night through an Airbnb listing.

Another reason for low inventory is property tax implications when people, especially senior citizens, sell a super or even moderately appreciated home. They bought low and sell high and then the replacement cost home if around here's tax bill, will be roughly 1.25% of the new purchase price, significantly higher maybe even a significant multiplier compared to the home sold. Only people who reside in Proposition 60/90 counties can transfer their old tax bill to the new home. But this could change. The California Association of Realtors, C.A.R., is going to qualify an initiative for the November 2018 ballot to allow disabled and senior homeowners (over 55 years of age) to keep all or most of their Proposition 13 property tax savings when they move.

This measure is important because seniors, who are often on a fixed income, fear they will not be able to afford a big property tax increase if they sell their existing home and buy another one, discouraging them from ever moving. As a result of this “moving penalty,” nearly three-quarters of homeowners 55 and older haven’t moved since 2000.

If prices are going up across the whole Midpeninsula, it’s not because of office buildings in Palo Alto. If not building offices were all it took to make cities affordable, Atherton would be the cheapest city in the Bay Area.

I agree that the cause of low supply is long-time homeowners staying in place, combined of course with the limitations on building new condos and apartments. If you stick around, not only do your heirs get the stepped up property basis, they can also inherit your assessed value under Prop 13, which is worth tens of thousands of dollars a year for people who bought decades ago. It just doesn’t make sense to sell when the tax advantages are so clear. Plus Palo Alto is a nice place to retire.

"If prices are going up across the whole Midpeninsula, it’s not because of office buildings in Palo Alto."

Of course not. Prices are going up across the whole Bay Area because of a huge population increase across the whole Bay Area caused by "office buildings" pulling in people from far away. Prices are driven even higher by the rush of foreign real estate speculators. Why oh why do we sell our own American soil to foreign nationals who rent it back to us by the night at a huge profit?

In 2018, how willing will buyers be to pay $40,000 in property tax when only $10,000 is tax deductible. That $10,000 a year of additional might be a consideration even for Palo Alto buyers. Sellers may have to lower their price 5-10% to sell their place.

Re: “Atherton would be the cheapest city in the Bay Area.”

You can buy an acre in Atherton with a very large house for 10 million. Can you buy an acre in Palo Alto for 10 million?

Atherton? Hmm. No. Its not worth dealing with the residents on a daily basis, not even for $5M. In an odd way it reminds me of a beautiful cemetery.

Note that the new tax bill will discourage large mortgages and therefore we will see more all cash purchasers - many of them from overseas.

Prices are rising because so many people love this beautiful town. Our roads and family oriented neighborhoods are quaint and pleasant. Children up and down our streets play into the evening in safety. I loved coming home to our cute little house in Barron Park...oopps, was day dreaming there....I loved it so much that I sold it, ran as fast as I could and never looked back. El Camino is gridlock at rush hours and the side streets now handle racing through traffic. It is unsafe to walk on the streets (Barron Park has no sidewalks). Kids cant bike or walk to school. it is too dangerous. Thefts and car break-ins are frequent. The City Council has sold out the people who built this town to the developers and the ultimate evil corporation- Plantir. Yes, only suckers and fools from overseas would buy in Palo Alto today.

@ common sense

"I agree that the cause of low supply is long-time homeowners staying in place,"

Oh, you mean us long time residents should move into another home? Oh wait, that doesn't really help as far as housing goes because that's just a swap. Downsizing is one less entry level home for a younger person.

Or, if it was up to you, would you kick us out to someplace else altogether because once we are retired we no longer deserve to live in our home?

Or, is it that you really think long time homeowners should just do the decent thing and die? Sorry, I'm not going to exit this world so you can live in my house.

@ Peter Carpenter

That is a good observation.

This might hit a nerve, so I want to be really clear I’m not advocating any particular policy here; just trying to do some arithmetic. But I wonder how much longer the price of single-family houses (which I assume is what this article means by “homes,” since condos don’t normally sell for $500K-$1M over asking) will be the most relevant metric in the Mid-Peninsula.

Everybody knows new housing construction hasn’t kept pace with job growth; slightly less obvious is the nuance that essentially all new housing construction is multi-unit; the growth rate of single-family homes has been close to zero, at least in the mid-peninsula. If you accept that many people would prefer a single-family house to a condo, notably younger people as they age and start families, then it’s a natural inference that as the population of Santa Clara/San Mateo counties continues to grow (about 15% in the last 10-odd years), and as the supply of single-family houses in the mid-peninsula stays essentially fixed, the prices of those homes are likely to continue escalating; and potentially faster than other kinds of housing where there’s at least some supply increase. Overseas investors and other factors notwithstanding, my guess is this trend is at least part of what we’re seeing in this article.

I’m certainly not suggesting we should rezone the peninsula for more R1. Rather, I suspect the Bay Area and mid-peninsula are in a long-term transition, in which there will increasingly be --- as in most global urban centers -- two distinct housing markets: a single-family home market, and a higher-density multi-unit market, with emphasis near transit. The pricing dynamics of the two are likely to move differently. So we ought to consider a focus that expands beyond the traditional real-estate definition of “home” to one more broadly relevant to more and more people.

When the GOP tax bill hits California, the remaining GOP congressmen in CA are toast.

They will own it.

Due to repeated violations of our Terms of Use, comments from this poster are automatically removed. Why?

Due to repeated violations of our Terms of Use, comments from this poster are automatically removed. Why?

Anyone buying a $40,000 - $120,000 house for $1.5 million To $4.0 million is truly uneducated.....

This looks like sales hype to me. Those initial asking prices seem very low.

A 5 bedroom home in a nice area that is relatively new in Palo Alto for under $3 million is going to generate a lot of interest and a bidding war, but it is going to sell for about the same as every other 5 bedroom home in Palo Alto, which is a heckofa lot.

I bought my little post war built home on St Francis in 1974 for $49,500. After getting married and we added on for about $210,000. I was able to retire and we decided to move to Hawaii fourteen years ago and sold for about $1,300,000. Wowsers!

Our real estate agent contacted us a while ago and told us the current value of my no longer little home was closing in on $4,000,000. WOWSERS!!

I agree with CressantParkAnon: realtors (particularly those at Deleon) often underprice their listings to encourage a bidding war. This way they ultimately get a higher sales price than would have been the case had they fairly priced the listing and, they can also claim that they successfully sold the home for way over the asking price. It's very frustrating to those of us who are looking for the bottom-of-the market listings and get excited when we see a price we can actually almost afford.

Since Deleon actively markets Palo Alto houses
to overseas buyers,and brags about it in marketing brochures,putting further pressure on prices when the City is facing a housing supply and affordability crisis, can anybody explain why it is that the same realtor,Deleon, is granted space on public sidewalks in commercial areas to distribute its marketing brochures? All part of the City Hall sham.

Of course, there are a wide variety of economic, demographic, and other factors that go into the eventual selling price of a home. Because this story limits its focus to the realtor's role, there is something we should always keep in mind:

Real estate agents are compensated by a commission which is set as a percentage of the eventual selling price.

The higher the selling price, the higher the commission. It is in the realtor's interest to sell a property at the highest possible price.

A quick flip through the real estate pages in your local paper proves the point. When you see ads showing recent sales, repeatedly, you would read captions that say "sold for $$ over list!" or "sold with ## offers!"

Clearly, real estate agents want you should know when they preside over a frenzy; it is a point of pride. The subliminal message is "Hire me! I will bring irrational exuberance to the sale of your home!"

When you are a seller, this is great. When you are a buyer, not so much.

In the article, real estate agent Xin Jiang said:

"'I represented a buyer in a sale that went for $1.1 million over. We had a very tough competitor,' she said. Of the five initial offers, her client's was third highest. The top two, she said, were at $500,000 over. 'We got a second chance', she said."

Maybe Ms. Jiang's clients told her, "We want to pay every last penny we have! Please help us empty our bank accounts! Please help us liquidate all of our stocks!"

Me? If the first round of offers came in at $500K over list and my realtor advised me to bid more than $1M over list, I would have to wonder if we could meet in the middle, say $750K over list.

Now, I don't mean to malign Mr. Jiang. Obviously, I wasn't there, I don't know the specifics. Perhaps she served her clients very well and did, in fact, get the lowest price the seller would accept.

One thing, however, is certain. If you are in the market for a new home and money *is* an object, caveat emptor!

Amen, @sham! I'm still looking for an answer to an even more basic question. Why on God's green earth are overseas buyers even allowed to buy our land, our American soil, in the first place? Many other countries don't allow non-citizens to purchase or own real estate; why do we?

While the focus of this article is a "feeding frenzy" for single-family homes on the peninsula, with prices in the $2M, $3M and $4M price range at the moment--the cost of the property taxes should not be ignored. A couple postings make note of these taxes in light of the new tax code, but what needs to be pointed out is that these taxes increase 2% yearly, not to mention all of the parcel taxes and "ad velorem" taxes for various projects that the City Council and PAUSD have convinced the public to pay for.

The owners of a $2M property will be paying about $43,000 a year in forty years; a $3M property will require about $65,000 a year in forty years and a $4M property will see the owners writing a check for over $86,000 a year.

People paying these high prices may not expect to live out their lives in Palo Alto as so many people posting on this topic have. Many of these new properties owners may well be expecting to "flip" these properties so they won't be expected to pay these high yearly property taxes. But if the market prices of these properties continue to increase, then the property taxes will be increased each time the properties change hands. It's not going to take long before people are going to realize that the cost of living in these properties is too expensive for continued occupancy. Either the owners of these properties will be the world's elites or the costs will have to come down.

Greedy real estate agents in Palo Alto have keep the buying mania for over 20 years. They don't care about the community. They only worship money.

Get ready,

The pendulum has swung, The young start up kids, don't want to own so rents haven't kept up with prices.

Now given all the thousands of apt's being built we are going to see a supply glut.

We bid on houses and looked at houses that were listed by DeLeon. They are renowned for listing prices way way below market, this generates more interest and more bids. This, in turn, gives them great numbers for new clients to market to for more house sales. In other countries this practice is strictly forbidden. It should be banned here too. It’s a revolting money grubbing practice and incredibly frustrating for the potential and geniune buyers to the area.

Deleon Realty always lists low to attract multiple bids and to double end the deal! Bad practice to represent both parties. It's disadvantage to buyers and sellers! Deleon only wants to market themselves.