by Ken DeLeon | Founder
While a rising tide will lift all boats, in real estate these boats (or neighborhoods) will not all rise at the same velocity.
Though there are some mega-trends driving the housing market in Silicon Valley, there are also micro-trends and dynamics that come into play with the cities relative to each other.
The status of which city is the hottest and most frenzied in Silicon Valley changes according to a push-pull dynamic, and the defining quality of a good buyer’s agent is to spot the next hot city before the market does. In this article, I will discuss how the interrelationship between cities works, illustrated with a current example, and I will also predict the next city buyers will focus upon and how property values will rapidly rise.
As the only top agent who works exclusively with buyers, and with over $1 billion in recent sales with these buyers alone, I have gained insight into buyers’ goals and preferences. I have observed that buyers will often consider several cities in their search. For example, buyers who are drawn to Palo Alto will often be attracted to Los Altos, Menlo Park, or Mountain View as well. Therefore, the pricing dynamics of each of these cities will impact one other.
In 2016, almost all cities fared better than Palo Alto. With all of the uncertainty of the election, the housing market did not do well, but in descending order Mountain View, Menlo Park, and Los Altos all appreciated, whereas Palo Alto dropped by 2.3 percent from the year earlier on a price-per-square-foot basis (all statistics in this article come from the MLS). Thankfully, 2017 was a much stronger year with all cities appreciating, but the appreciation was not evenly distributed. From January to August, Palo Alto only appreciated by four percent, versus Mountain View which rose by 10 percent, with Los Altos and Menlo Park also rising more than Palo Alto.
By September of 2017, the upward movement of prices in Mountain View (up over 16 percent since 2015) and other cities versus Palo Alto’s 1.7 percent appreciation over the same timeframe made Palo Alto a relative bargain. This discrepancy pulled buyers back from Mountain View and Los Altos to Palo Alto. Since September, Palo Alto has become the region’s hottest market with the price per square foot jumping from $1,565 when averaged from January to August, to $1,797 per square foot for sales between September and December, leading to an increase of 14.8 percent just in the last few months. Palo Alto still has strong momentum, with one of our South Palo Alto listings selling for more than a million dollars above list price at over $2,300 per square foot!
Dissecting and analyzing the past is interesting, but prognosticating the future is much more insightful and valuable. So, what city will become the latest value play and soon see a push-up in pricing? I predict that this will be Menlo Park.
As recently as 2012, the gap between Menlo Park and Mountain View on a price-per-square-foot basis was 10 percent, and now that gap has narrowed to 1.7 percent. With this latest surge in Palo Alto pricing, plus the past strong appreciation of Mountain View and Los Altos, buyers will soon be pulled to the great values, good schools, and high quality of life Menlo Park offers.
While all of these cities have excellent fundamentals for long-term appreciation, getting into the next hot city before others do can save you hundreds of thousands of dollars. You will want to work with a skilled and insightful buyer’s agent who has the expertise and acumen in economics to properly predict market appreciation.