The Peninsula's real estate market is experiencing a resurgence, marked by the return of bidding wars and stiff buyer competition. While the overall Midpeninsula housing market is on the path to recovery, Palo Alto Homes for Sale seem to be lagging behind their neighboring cities, with the median price of a single-family home in Palo Alto down by 8% compared to the previous year as of September 16. However, the situation is dynamic, and the market holds various indicators of both recovery and challenges.

Prospective homebuyers are reemerging in the housing market despite escalating interest rates. Open houses, particularly in the entry-level range of $3 million to $4 million, now draw crowds of young families. The resurgence of multiple bids is driving up home prices. However, for those aspiring to break into the market’s lowest echelon, that opportune moment may have slipped through their grasp.

Amid this whirlwind, the weekly average for a 30-year fixed-rate mortgage loan, according to Freddie Mac, has reached 7.18%, the highest level since 2002, posing new challenges to buyers. This scenario calls for a closer look at the local real estate landscape, especially in Menlo Park, where opportunities and challenges intertwine.

The Good News: Stabilized Prices and Faster Sales

It's encouraging to see that home prices have finally stabilized in some areas. For example, in Palo Alto, the median price of a single-family home plunged by 18% in the first quarter of this year compared to the previous year. However, in the second quarter, the decline was only 9% compared to the same period last year. By the third quarter, the median price was $3.35 million, almost on par with $3.39 million from the same period the previous year.

Homes are also selling much faster than they were at the beginning of the year. The average time a property spends on the market has dwindled to 14 days during the third quarter, compared to 25 days in the first quarter of this year and 27 days during the same period the previous year. More than half, 55%, of homes are now sold above the asking price, a significant increase from approximately 33% at the beginning of this year and 47% for the same period last year. Clearly, as buyers sense an upward price trajectory, their motivation and commitment have undergone a profound shift. These dynamics are particularly evident in Palo Alto Homes for Sale, where an 8,000-plus-square-foot lot property sold for more than $3.5 million after 19 enthusiastic buyers bid up the price by 20% in September.

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Several factors have contributed to the market's path to recovery. In the third quarter of 2022, the market sharply plunged and hit bottom, leaving little room for further decline. The median price of a single-family home sold in Palo Alto peaked in March 2022 at $4.3 million and had plummeted by 20% four months later in July. The descent continued throughout the latter part of 2022.

Low supply of houses for sale has played a crucial role in this recovery process. The number of new listings on the Multiple Listing Services (MLS) tumbled by 17% year over year in the first quarter of this year. While supply surged marginally in the second quarter, it dwindled once again in late summer. As of September 16, there are 15% fewer homes for sale compared to the same period the previous year. This supply-demand dynamic affects Menlo Park Homes for Sale significantly, where opportunities abound.

Cash buyers are also more prevalent in Menlo Park, constituting almost 40% of single-family transactions year to date. In Los Altos, they make up 25% of transactions, and 24% in Palo Alto. Menlo Park, a thriving community within the Peninsula, tends to attract a more diversified buyer pool beyond tech engineers. Among the three Midpeninsula cities, on the basis of price per square foot of living area, Palo Alto still offers the least value.

The Challenges: Escalating Homeownership Costs

Even as the housing market is recovering, numerous substantial hurdles impede a swift rebound. The first is the cost of financing. Banks are feeling the pain of the fast-rising interest rate on multiple fronts. Many lenders have declared that mortgage lending is no longer their strategically favored business and have laid off a significant portion of their loan agents. This shift impacts buyers across the Peninsula, making the guidance of a trusted Menlo Park Real Estate Agent even more critical.

Home insurance costs are also spiraling out of control, with several insurance companies stopping new home policies in California. They cite inadequate premiums to cover frequent natural disasters and soaring construction costs. Even among those carriers that still offer coverage for residential homes in our area, the criteria have been significantly tightened, making it increasingly challenging for older homes with wood shingle roofs and those in rural areas to secure coverage. These challenges underline the importance of understanding local nuances when dealing with Menlo Park Homes for Sale.

In Conclusion

Whether the residential real estate downturn is definitively in the rearview mirror remains to be seen. Nevertheless, with the economic outlook shifting upward for the coming year and a rejuvenated IPO market, there appear to be fewer reasons for pessimism. Buyers, sellers, and investors are encouraged to consult with experts like Milad Real Estate, a trusted Concierge Real Estate Brokerage serving Palo Alto, Menlo Park, and Atherton, to navigate this evolving real estate landscape successfully. Opportunities await in the Peninsula, and a local expert can guide you through them.

In a surprising twist, this September in Palo Alto defied the typical Palo Alto real estate market slowdown associated with the end of the school year, graduations, and increased family vacations. Instead, it witnessed an unprecedented surge in new listings, reaching the highest number in the past decade.

A total of 83 homes made their debut on the Multiple Listing Service (MLS), marking an 11% increase compared to September 2022. Several factors contributed to this surge in inventory, including adverse weather conditions in early spring, which pushed the inventory to later in the year.

Moreover, sellers who had been hesitant about listing their properties may have recognized the continued strength of the market, prompting them to take action.

A Market Divided

The real estate market displayed a divided trend, with the inventory increasing only in September and not throughout the first six months of 2023.

Out of the 272 single-family homes listed, 64% have either been sold or are pending, leaving 36% still on the market. Among the 147 homes that changed hands, slightly over half were sold above the asking price, with an average margin of 10%.

Homes that sold above the asking price had a median price of $3.7 million and spent an average of 10 days on the market, compared to 27 days for those that sold below their listing price. Unsold homes, on average, have been on the market for 40 days. Pricing is a crucial factor influencing the speed and outcome of a sale, but it's more of an art than a science. In a market with divided dynamics like the current one, prices may not always reach fair value as buyers tend to be disciplined and opportunistic.

Rise in New Construction with Accessory Dwelling Units (ADUs)

This year has also witnessed a surge in the sale of newly built homes featuring Accessory Dwelling Units (ADUs). ADUs are secondary units situated on the same property as the primary single-family homes, providing additional housing options.

The history of ADUs in California dates back to 1982, but significant progress in their construction has only been made recently when certain building regulations were eased to better accommodate these secondary dwellings. Notably, Palo Alto made significant advancements in 2017 when the city eliminated its minimum lot size and parking restrictions.

While only 5% of the 74 new-construction homes on the Multiple Listing Service in 2019 and 2020 included ADUs, this percentage has risen to 22% since 2021, with 16 new homes featuring ADUs, seven of which were sold in the first half of this year.

Among the seven new homes with ADUs that recently sold in Palo Alto, the median sales price was $5.4 million. All but one of these properties were located south of Oregon Expressway, with five of the ADUs attached to the main house and two as separate structures.

ADUs present an effective solution for maximizing housing potential on smaller lots, especially in single-family zoning areas where the size of the main residence is constrained by lot size. Having additional square footage in the form of an ADU often translates to higher property prices.

Buyers are still adapting to the concept of ADUs and their potential uses, whether as spaces for visiting family members, additional office or gym space, or even potential rental units. There are pros and cons to both attached and detached ADUs, with attached units being cost-effective but potentially compromising privacy, and detached units offering more space and functionality at the expense of outdoor area.

The inclusion of ADUs into neighborhoods, especially in the mid- to low-price range, is a growing trend. Single-family homes with both a Junior Accessory Dwelling Unit (JADU) and an ADU effectively provide three separate living units, offering new lifestyle options for various families. This trend benefits young couples, retirees, and investors alike. Single-family homes with ADUs are often located in desirable areas, offering potentially higher returns and reduced maintenance costs.

In a resounding effort to tackle the affordable housing crisis, Menlo Park City Council has allocated a substantial $4.2 million toward the development of affordable housing projects. This move promises to make a significant impact on the community's housing landscape.

A noteworthy chunk of this financial support, totaling $4.3 million, comes from Menlo Park's below-market rate housing fund. This substantial investment is poised to bring forth 88 new affordable homes, with a focus on a prominent development at 123 Independence Drive.

During a recent Menlo Park City Council meeting, Matt Regan, Senior Vice President of Government Relations for the Bay Area Council, emphasized the gravity of the housing issue, stating, "This morning between 4 and 5 a.m., 120,000 people got out of their beds in their homes up and down the Central Valley and drove into the Bay Area to their jobs here. And that is because we, as a region, have failed."

One pivotal development benefiting from this funding is the Sobrato Organization's ambitious project at 123 Independence Drive. This housing development, located in the Bayfront neighborhood, comprises 432 units, including 66 designated for below-market-rate housing. The Menlo Park City Council has unanimously approved agreements supporting these below-market-rate units, along with the overall project's layout.

The development also features an ample 586 parking spaces and nearly 50,000 square feet of publicly accessible open space, designed to enhance the community's quality of life. Among its amenities is a neighborhood park complete with bike and pedestrian pathways.

Ali Sapirman, South Bay organizer for the Housing Action Coalition, lauds the Sobrato Organization's dedication to the cause, saying, "When you see a developer go above and beyond mandates, that is a clear indicator that they are committed to positive outcomes for the community."

Responsible for the affordable units at 123 Independence Drive, Habitat for Humanity, a nonprofit committed to affordable homeownership, plays a vital role in ensuring these Menlo Park homes are accessible to those in need. The organization's mission is to cap housing costs at 30% of income. While their typical beneficiaries earn between 50-100% of the area median income (AMI), for this project, they have extended their services to households making up to 80% AMI. Purchasers of affordable units are also required to participate in financial literacy courses. Notably, only those listed on the property's title need to be first-generation homeowners, in contrast to Menlo Park's BMR guidelines, which state that all residents of the home must be first-time homeowners.

In addition to the investment in 123 Independence Drive, the Menlo Park City Council has approved a total of $4.18 million for three more affordable housing projects in Belle Haven. The decision follows the city's notice of funding availability for affordable housing, which allowed developers to apply for these funds. The Housing Commission recommended three out of four applications for approval.

The one project not selected for funding, submitted by HIP Housing, sought $11.3 million for nine low-income units. While this decision does not exclude HIP Housing from future funding opportunities, it was based on cost considerations. HIP Housing planned to contribute to the project through a land donation and requested $1.2 million per unit, representing a significant portion of the project's cost.

On the other hand, three applications were greenlit, including one from Habitat for Humanity, requesting $2 million for 18 low-income homes within the 123 Independence Drive project. Additionally, MidPen Housing secured $2 million for 62 extremely and very-low income units for veterans at 795 Willow Road, and Rebuilding Together was granted $180,000 to rehabilitate eight units in the Belle Haven neighborhood.

The unanimous approval of these applications reflects Menlo Park's commitment to addressing the pressing issue of affordable housing, offering hope for a more inclusive and equitable community.

Welcome to Palo Alto, home to some of the most expensive real estate in the country. If you're looking for a place to call home, you'll find that prices here are well out of reach for the average person. But don't despair – even in a city as pricey as this one, there are ways to find affordable housing. One option is an accessory dwelling unit (ADU), which is a small housing unit that can be attached to or separate from a primary residence.

Earlier this year, Palo Alto passed new regulations governing ADUs. But now, the California Department of Housing and Community Development has determined that these rules are too restrictive and run afoul of state regulations. As a result, Palo Alto will have to revise its new laws.

The Department's ruling is a setback for the city, which has been working for years to increase the availability of affordable housing. But it's also good news for people who are looking for a way to afford to live in Palo Alto. The revised rules will likely be less restrictive, making it easier to build ADUs.

So if you're thinking about moving to Palo Alto, keep an eye on this space. We'll update you as soon as the new regulations are announced. In the meantime, if you have any questions, please don't hesitate to contact one of our local realtors. They would be happy to help you find your dream home in this amazing city.

Palo Alto is one of just 13 cities or counties in California that have received "review letters" from the state department notifying them that they need to revise their ADU plans. Atherton, Santa Cruz, and Pittsburg are the only other Bay Area municipalities that have received such warnings.

This development is a setback for Palo Alto, which has been working for years to increase the availability of affordable housing. But it's also good news for people who are looking for a way to afford to live in Palo Alto. The revised rules will likely be less restrictive, making it easier to build ADUs.

So if you're thinking about moving to Palo Alto, keep an eye on this space. We'll update you as soon as the new regulations are announced. In the meantime, if you have any questions, please don't hesitate to contact one of our local Palo Alto realtors. They would be happy to help you find your dream home in this amazing city.

Menlo Park City Council unanimously voted on Tuesday to disband the housing plan's Community Engagement and Outreach Committee (CEOC) and enlist a community-based organization to take over the group's work, after several members resigned in frustration due to the limited scope and other dysfunctions of the committee.

City Manager Alex McIntyre explained that with a goal of 100 percent participation in Menlo Park's new housing program, "there was no room for even one member who didn't agree." He said that extending an invitation would have been disingenuous.

"It's time to look at the next step," McIntyre said, calling for new leadership. "We go forward with new life."

Members of CEOC had spent weeks on outreach activities before submitting ideas to the council, but their suggestions were soon thrown out by staff and council members who felt that they didn't align with broader strategies. [...]

When asked what community-based group would be best suited to fill the void, Councilman Ray Mueller responded: "I don't know if there is one right answer." He suggested bringing in several groups to present options during a work session so as not to waste any time.

Councilman Peter Ohtaki agreed that finding an organization would be key. "It's important to establish some credibility," he said.

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Councilwoman Catherine Carlton added that working with an organization would be "a new opportunity to get the right people at the table." She suggested starting with Menlo Park-Atherton Education Foundation, which recently met with CEOC members about its joint project with College Preparatory School to host a speaker series on housing issues. [...]

The city has been looking for ways to spread the word about its housing program since it was introduced last year, but efforts have been difficult because of both budgetary constraints and resistance from some community members. [ ... because of...resistance.]

"It's really sad because we want everyone in Menlo Park to understand what is going on so they can participate," Mueller said. [ ... participate.]

"The next outreach effort should be more inclusive," he added, referring to the fact that CEOC was not open to all Menlo Park residents. [ ... Menlo Park residents.]

Councilman Rich Cline agreed with Mueller and called for finding a volunteer group instead of an organization. "People don't want to follow the lead of the city," he said. [...]

Community activist Ilyse Magy suggested working with Atherton, which has taken a different approach by hiring its own consultants and holding regular meetings about its housing element. She noted that most members of CEOC had worked on both elements; it would make sense for them to apply their knowledge in another capacity, such as finding a consultant to work with Menlo Park.

"At this point, we need something more cohesive and less divisive," [...] "It's time to try something different."

When it became clear that council members were committed to working with another organization, Magy asked whether they would be open to bringing CEOC back in the future if it wasn't successful. Carlton responded: "I think I can speak for everyone here that we are willing to revisit this." [ ... willing.]

Councilwoman Kirstin Keith said she wouldn't mind seeing Menlo Park Community Foundation step up as a coordinator between organizations that have been actively involved in housing issues. She noted that the city has an agreement with the foundation to consulting services on environmental impact reports. "We've reached out to them, but not in this matter," she said.

One council member who did not attend Tuesday's meeting was Ray Mueller, whose term will end on Dec. 31. Mueller had urged the council last month to allow CEOC to complete its work and inform residents of what has been accomplished so far. [Mueller urged...]

The city plans to spend approximately $2 million in a competitive bidding process with a community-based organization that would conduct outreach activities going forward. [ ... going forward.] The City Council also wants an organization to provide support for Menlo Park's ongoing effort to update the housing element of its General Plan, which was adopted in 1988 and is due for review by July 2017.

The Palo Alto City Council on Monday night gave initial approval to a new "planned home" zoning designation, despite the lack of interest from developers.

The goal of the proposed legislation was to give residential developers who choose to build housing under this new designation an opportunity to make adjustments related to permitting requirements in exchange for producing new housing. Palo Alto, which is struggling with affordable-housing woes, needs 300 new dwelling units per year just to keep pace with its population growth rate, according to Palo Alto staff reports.

But so far no one has submitted a planned home project application under the current rules because they are too restrictive and don't compensate them enough compared with other zones, said Palo Alto Senior Planner Jonathan Lait. So Palo Alto planners have suggested a number of changes to make Palo Alto's planned home designation more attractive to developers.

If the Palo Alto City Council votes to approve these amendments, it would be giving "final approval" for Palo Alto residents to build up to three homes on a lot under the new zoning designation, according to Lait. In order for Palo Alto residents or their partners to qualify, at least one of them must have been living in Palo Alto for at least six months before applying and not be an employee of another development company that has applied for the special zoning designation in Palo Alto.

Applicants would also still need to abide by current height restrictions and other zoning regulations related to building setbacks and landscaping. After meeting all these requirements, they could then add an additional floor.

A Palo Alto staff report explained that this would add an incentive for developers to build in Palo Alto since low-rise projects are the most common type of development in Palo Alto and "offer the lowest return on investment." According to Palo Alto planners, the planned home designation could be perfect for Palo Alto residents who own a bigger lot and want to add more Palo Alto homes for sale without demolishing their houses.

"The 'planned home' designation can provide benefits beyond what is available through traditional residential zoning," Lait told the Palo Alto Planning and Transportation Commission earlier this month. "And it can help accommodate changing demographics as well as sustainable growth patterns such as those proposed by Plan Bay Area 2040."

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But Palo Alto residents have demonstrated a general reluctance to apply for the designation. Palo Alto officials have received just one inquiry from a resident about applying under Palo Alto's "planned home" zoning since it was adopted in 2020, according to a Palo Alto staff report.

The lack of interest has been frustrating for some Palo Alto City Council members, despite recognizing that Palo Alto's height restrictions and other regulations have limited the number of developers who would consider converting their properties into rental housing or adding more units.

"It seems as though we haven't been able to develop any momentum with this program," said Councilman Eric Filseth during Monday night's council meeting. He suggested amending the ordinance so that each council member could designate up to 1 percent.

How to win as a buyer in the sellers' market

Some Highlights

Even in today’s sellers’ market, there are still ways for buyers to win big.

Build a team of trusted professionals and make strategic plays as you budget and pick your desired neighborhoods. Then, be ready for the competition by getting a pre-approval letter and leaning on your expert advisors to draft a winning offer.

In a sellers’ market, you can still be the champion if you have the right team and strategy. Let’s connect today to make your game-winning play. Looking to buy a house in Menlo Park Ca or buy a house in Atherton. Please give us a call.

Buyers in Silicon Valley Asking Me Why Is Housing Supply Still So Low?

One key question that’s top of mind for homebuyers in Silicon Valley this year is: why is it so hard to find a house to buy? The truth is, we’re in the ultimate sellers’ market, so real estate is ultra-competitive for buyers right now. The number of buyers searching for a home greatly outweighs how many homes are available for sale.

While low inventory in the housing market isn’t new, it’s a challenge that continues to grow over time. Here’s a look at two reasons why today’s housing supply is low and what that means for you.

1. New Home Construction in Peninsula Fell Behind for Several Years

The graph below shows new home construction for single-family homes over the past five decades, including the long-term average for housing units completed. Builders exceeded that average during the housing bubble (shown in red on the graph). The result was an oversupply of homes on the market, so home values declined. That was one of the factors that led to the housing crash back in 2008.

Since then, the level of new home construction has fallen off. For the last 13 straight years, builders haven’t been able to construct enough homes to meet the historical average (as illustrated in green on the graph). That underbuilding left us with a multi-year inventory deficit going into the pandemic.

2. The Pandemic’s Impact on the Housing Market

Then, when the pandemic hit, it fueled a renewed appreciation and focus on the meaning of home. Having a safe space to live, work, school, and exercise became even more important for Americans throughout the country. So, as mortgage rates dropped to at or below 3%, buyers eagerly entered the market looking to capitalize on those low rates to secure a home that would fulfill their changing needs. At the same time, sellers hesitated to put their houses on the market as concerns about the pandemic mounted.

The result? The number of homes available for sale dropped even further. A recent article from realtor.com explains:

“Last month, the number of home listings dropped 26.8% compared with the same time a year earlier. This meant there were about 177,000 fewer homes listed in what’s already typically a slower month due to the holidays and colder weather. . . .”

What Does All of This Mean for You?

For a buyer, low inventory can be a challenge. You want to find the home of your dreams, and you don’t want to settle. But what if there just aren’t that many homes to choose from?

There is some good news. Experts are projecting more homes will soon become available thanks to sellers re-entering the market. Danielle Hale, Chief Economist at realtor.com, shares this hope, but offers perspective:

“We expect that we’ll start to see a turnaround and inventory will stabilize and start to go up a little bit in 2022. . . . But that means we’re looking at inventory levels of roughly half of what we saw before the pandemic. For buyers, the market is likely to continue to move fast. If you see a home you like, you want to jump on it right away.”

Basically, inventory is still low, even though more homes are coming. But you shouldn’t put your plans on hold because you’re waiting for those additional houses to hit the market.  Instead, stick with your search and persevere through today’s low inventory. You can find your next home if you’re patient and focused.

Remember your goals and why finding a home is so important. Those things should be the driving force behind your search. Share them with your agent and be clear about your priorities. Your trusted advisor is your greatest support as you navigate today’s low housing supply to find the home of your dreams.

Bottom Line 

If you’re planning to buy this year, the key to success will be patience given today’s low inventory. Let’s connect to discuss what’s happening in our area, what homes are available, and why it’s still worthwhile to prioritize your home search today.

Some Highlights

• According to a Gallup poll, real estate has been rated the best long-term investment for eight years in a row.
• Real estate tops the list because you’re not just buying a place to call home – you’re investing in your future. Real estate is typically considered a stable and secure asset that can grow in value over time.
• Let’s connect today if you’re ready to make real estate your best investment this year.