Changing of the Tide?

Palo Alto has always been fashion-forward when it comes to real estate trends. Having worked in residential real estate in this area for 8 years, I have found that the Palo Alto housing market serves as a compass when it comes to trying to predict the next real estate pattern. Over time the neighboring cities, Menlo Park, Los Altos, Redwood City and San Carlos, will often mirror the market ebbs and flows experienced in Palo Alto. 

It started about three years ago when homes in Palo Alto began to fly off the market. Homes were selling with multiple offers and for $100,000s over the list price.  Within a short period, the rest of the mid-Peninsula followed suit. In most cities, homebuyers had to submit their best offer in order to be chosen amongst a sea of competing buyers. It has not been unheard of for a home to go for as much as $300,000 over the asking price with multiple offers.

The market frenzy started in Palo Alto and it has sustained a steady pace ever since.  The entry-level price for a home in Palo Alto is about $2 - $2.3 million (and this price point is only attainable in midtown, South PA and parts of Barron Park).  But in the last few weeks, there have been some indicators that a slow down may be afoot. While the weekend open houses continue to be packed, the offers have not been coming in at the same speedy fashion we once had. 

The chatter among agents is that we continue to have a healthy amount of interested buyers, but they are now cautiously waiting on the sidelines before submitting an offer. The previous feeling of time pressure and the sense of urgency has almost disappeared.

It begs the question - why the sudden change? I can think of a few reasons buyers might be wary, but it is definitely a bit of a shock since our real estate market is usually pretty robust in the Fall time of year.

First, the Asian stock market had a pretty significant shake-up in early September and the US stock market was erratic for a while as well. Whenever we see an unsteady market, people tend to grip their wallets a bit tighter. And since almost 50% of the Palo Alto market is comprised of foreign buyers, and to a lesser degree Menlo Park and Los Altos, a turbulent stock market might be causing some hesitation.

Secondly, buyers are just plain exhausted. Finding a house in such a sought-after market is a tough road to travel. Multiple bids and the emotional highs and lows associated with writing offers to no avail can fatigue just about anyone.

Lastly, buyers have been conditioned to “assume” a house will sell for several $100,000s over the list price. Now it appears that houses are selling at the list price, just slightly over or just slightly under. However buyers haven’t yet readjusted their expectations and therefore are passing up opportunities to submit an offer based on their experience from the past. 

While we can only speculate if a slowdown is on the horizon, we should consider that now may be a good time for a buyer to negotiate. If the clouds are truly parting, it might be a healthier, more palatable market to make a move. 

So my advice to buyers is to step up your search while everyone else is taking a breather. Don’t psyche yourself out when you see a home that has been sitting on the market for more than a week.  It’s not necessarily a reason to believe the old adage that “something must be wrong with the house” but rather the only thing “wrong” with the house is that the “right” buyer hasn’t come around.

Please don’t hesitate to contact us to show you a few good opportunities!