Introduction to Palo Alto

One of the addresses on the Peninsula east of 280, Palo Alto has the credentials to back up that prestige…but you pay.

Abbreviated map of Palo Alto, showing main residential areas and environs. Map boundaries are approximate due to my limitations as a map maker. See Palo Alto neighborhood pages for neighborhood maps. Boundaries and other information on this site should be verified before being relied upon.

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pros and cons

pros

· Highly-regarded school district, from K through 12.

· The mid-Peninsula’s only regional downtown, plus a second downtown that’s the equal of many neighboring downtowns, plus a shopping district that gives the Midtown area its focal point.

· Twenty-nine parks, including 1400 acres in the foothills open only to Palo Alto residents.

· Three community centers: Lucie Stern, Mitchell Park and Cubberley. Lucie Stern and the surrounding buildings and park are perhaps the most beautiful and elaborate community facilities on the Peninsula.

· One main library, and five branches including a children’s library.

· An incredible array of city-sponsored programs for adults and children.

· City-owned utilities include electric, fiber optic, natural gas, water and sewer.

· City encourages citizen participation in community decision-making (“the Palo Alto process”).

· A wide variety of neighborhoods, including some of the most distinguished on the Peninsula, as well as some that are relative bargains.

· The long-time cultural, intellectual and economic influence of a leading university.

cons

· Although Palo Alto offers much, not everyone thinks it’s a “bang for the buck” real estate market. This sometimes creates the perception that Palo Alto is overpriced. That’s an argument no one’s going to win, since value is subjective, but the corollary to this perception, that only fools and snobs pay “inflated Palo Alto prices”, ignores the fact that buyers act extremely rationally when spending this kind of money. Strong demand for Palo Alto isn’t a recent fluke. Enough buyers have voted for Palo Alto with their checkbooks over the years to keep the city selling at a premium. Yes, Palo Alto prices go down as well as up, but anyone who’s waiting for this city to start selling at the slower pace of less-sought-after cities like Fremont or San Jose is an incurable optimist.

· But you may not agree that what Palo Alto offers is worth the premium, particularly if you judge a city just by how much house or neighborhood you can buy. There’s no doubt that you can get a larger house and perhaps a more attractive neighborhood in neighboring cities for the same or less money. You may even get high-scoring schools and an attractive downtown. You just won’t get the complete Palo Alto package. See Neighboring Cities for alternatives.

· Palo Alto is a tough place for buyers, even in a normal market. In a hot market, Palo Alto rockets off and reaches a higher orbit. Palo Alto is one of the two or three most competitive real estate markets on the Peninsula, itself an extremely competitive market. So what does “extremely competitive” mean in plain English? It means that “I’d like to live in Palo Alto as long as I don’t pay too much” loses every time to the one buyer in five, ten or twenty whose mantra is “whatever it takes, I’m going to buy in Palo Alto”. Whether real estate is hot or cold, the harsh reality is that buying in Palo Alto has become like getting into a top university: it takes an exceptional drive and willingness to sacrifice that, by definition, only a few people have. That’s what “extremely competitive” means: many are called, few are chosen.

· Be wary of an agent who claims to know Palo Alto but needs a map to get around it, even if she gets around in a Mercedes. Palo Alto is the fast lane of local real estate. Any town with a regional, national and even international reputation as a great place to live will have different rules, higher expectations and faster action. The way real estate is bought and sold elsewhere won’t cut it here, and experienced Palo Alto listing agents know that.

· Part of the considerable Palo Alto mystique is the claim that it’s a better investment than its neighbors. Buyers and agents say it gains value faster in a hot market and holds its value better in a declining market. The numbers going back to 1992 say they’re only half right: Palo Alto takes off faster and harder in a hot market, but it comes down just as hard and fast when the market slumps. However, there’s no denying that Palo Alto was one of the handful of local cities to recover quickly from the late-2008 downturn, and it recovered more strongly. But until they find oil in every Palo Alto backyard, buy here because it’s a wonderful place, not because it’s a bullet-proof investment.

· Prices have excluded worthy people who would add to the city’s mix. The plumbers and police officers who once could buy a modest home in an affordable Palo Alto neighborhood have been commuting from Modesto for years.

· Those looking for the Los Altos or Central Menlo ambience of an upscale ranch-style home on a quarter-acre lot won’t have many options in Palo Alto. Leland Manor is it, and while other neighborhoods come close, Palo Alto isn’t for the land-hungry on a midrange budget.

· Like any affluent city, Palo Alto has a reputation for snobbery. I’m thinking of a short-lived marketing campaign for downtown Redwood City that featured the slogan “Palo Alto without the attitude”.

· Have I mentioned that Palo Alto is a tough, competitive market for buyers?

Interested in buying a home in Palo Alto? Please contact me at jfyten@cbnorcal.com.

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neighborhoods

Click on each of these Palo Alto neighborhoods for an in-depth look.

Barron Park

California Avenue

College Terrace

Community Center

Crescent Park

Downtown

East Charleston

East of Midtown

Evergreen Park

Green Acres

Green Gables

Hills of Palo Alto

Leland Manor

Midtown

Monroe

Old Palo Alto

Professorville

South Palo Alto overview

Southgate

Ventura

West Charleston

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price performance

Part 1:  Here’s how Palo Alto’s major sub-markets have performed since 1994. Top-end Palo Alto consists of California Avenue, College Terrace, Community Center, Crescent Park, Downtown, Evergreen Park, Leland Manor, Old Palo Alto, Professorville and Southgate. Some of these neighborhoods also have a varying amount of entry-level housing. Entry-level Palo Alto is almost everything else, generally the tract neighborhoods built after World War II: Barron Park, East Charleston, East of Midtown, Green Acres, Green Gables, Midtown, Monroe, Ventura and West Charleston. The Palo Alto Hills isn’t included here, since its ultra-top end prices are more typical of Los Altos Hills et al. Palo Alto CID (Common Interest Development) includes all condos and townhouses, regardless of area. This graph is based on data from the Multiple Listing Service, corrected to eliminate anomalies at both ends of the price range that skew average sales price. The data has also been adjusted to compensate for the often substantial differences in average property size from year to year that can also skew averages. In effect, we’re tracking the same condo, entry-level neighborhood SFR and top-end neighborhood SFR through twenty-two years (SFRs) or fifteen years (condo) of boom and bust. The base year, 1994, was the last year of the post-1989 bust (note that there is no 1994 data for CID). 2000 was the dot-com peak, Q4 2001 the bottom of the dot-bust. 2005 is often called the recent market’s peak, although the Palo Alto market peaked in early 2008. It bottomed in 2009 and was one of the first to recover.  I’ve separated 2016 prices by first and second half.  2017 prices are as of the first half.

 

 

Part 2:  The charts below are easier to understand than they look, and they have great information. Based on the same data as above, all you really need to know is that “peak” means “peak”, “trough” means “bottom of the market for this city’s SFRs and condos, whenever that was”, and that the more negative the number in the last column, the more volatile this city’s home prices have been during the period covered.  I recommend that you scan the chart now, then come back for the more detailed explanations below if you need them.

The charts are formatted in six (Palo Alto CID) or eight (Palo Alto SFR) columns covering five (CID) or seven (SFR) time periods to illustrate Palo Alto home price appreciation in percent since 1994 (SFR) and 2000 (CID), and the size of its recent real estate peaks and troughs.  In each case, Palo Alto home appreciation and depreciation is compared to the average of all local submarkets covered by this site.  The last column in each chart is a non-statistician’s attempt to quantity volatility by combining home price depreciation over the two most recent downturns and comparing it to the area average.  Here are detailed explanations of the six (or eight) columns:

  1. 1994-2013:  (SFR only) Palo Alto home price appreciation from the beginning of the dotcom boom to present, compared to the average of all local submarkets described on this site.
  2. 2000-2013:  Palo Alto home price appreciation from the peak of the dotcom boom to present.  I separate this time period from 1994-2013 because the data I have for some local submarkets goes back only to 2000.
  3.  1994-2000:  (SFR only) Palo Alto home price appreciation during the first boom with which I had first-hand experience, the dotcom boom, which began as a modest recovery in the mid-1990s, gained considerable momentum in the late 1990s and spiked from late 1999 through the end of 2000, with a sharp but temporary downturn in early 2000.
  4. dotcom peak to dotbust:  Palo Alto home price depreciation from the peak of the dotcom boom, 2000, to the bottom of its collapse Q4 2001.  Note that not every local submarket lost value then.  The handful of local submarkets driven not by stock market wealth but by wages and interest rates (like much of California) actually gained value during this period.
  5.  dotbust to previous peak:  Palo Alto home price appreciation from 2002 to when Palo Alto peaked in early 2008.  To facilitate comparison between local submarkets, I say “previous peak” rather than give a date, since our submarkets peaked anywhere from 2005 to early 2008, depending on strength of demand (“brand”).
  6.  Previous peak to trough:  Palo Alto home price depreciation from early 2008 to late 2008 when it bottomed.  To facilitate comparison, I say “trough” rather than give a date, since local submarkets bottomed anywhere from late 2008 to 2011, depending on strength of demand (“brand”).
  7. Previous trough through 2013:  Palo Alto home price appreciation from late 2008 through 2013.
  8. Total depreciation 1994-2013:  Total Palo Alto home price depreciation during the two downturns included in the data, compared to the average for all local submarkets covered by this site. Total depreciation greater than average suggests greater-than-average price volatility–in other words, a bumpy ride. It’s surprising, given Palo Alto’s reputation as a bullet-proof investment, to see that, at least by this measure, Palo Alto has greater-than-average volatility, but its greater-than-average appreciation may offset this for many. Note that during the dotcom boom top-end Palo Alto outpaced entry-level, which suggests where dotcom money went (see also Atherton), but that entry-level outgained top-end during the mid-2000s when interest rates were more a factor.

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riseandfallchartPaloAltoCID

copyright © John Fyten 2004-2014

3 thoughts on “Introduction to Palo Alto

  1. HI John
    Looking to extrapolate an appraised value from 1994 to the present for a 2/1 in College Terrace. What would be a good rough appreciation factor to apply. Just looking for a rought idea to use as a data point. Tks

    • Hi Mike: Good to hear from you. According to my records, taken from MLS data, Palo Alto homes sold at an average sales price of $256/sq.ft. in January 1994. In January 2014, the average sales price per square foot was $1325. That’s a multiplier of approximately 5.2. I could also give you an estimated current sales price for a particular property if you like.

  2. Thanks John for all the great neighborhood and market data! My husband and I have been house hunting for a few months in the PA/MP area. The market has gotten VERY HOT this year and we are starting to wonder if the bubble is back…this time encouraged by zero inventory, a handful of IPOs and a great deal of foreign investors worried about the stability of the economy in their home country. Seems like a great time to sell but would you advise waiting for a market correction to buy? Thanks!

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