2014 Q1 Menlo Park East of El Camino* Real Market Update
It’s conventional wisdom that real estate is cyclical.
In my 20 years of selling real estate on the Midpeninsula I have seen time and time again that this is true. The key to financial success in real estate, as in stocks, is to buy when prices are cycling low and sell when they’re high. If only it were so easy!
It is also conventional wisdom that history repeats itself. Let’s take a look at the past to try to get a sense of the future:
From Q1 2013 to Q1 2014, the Days On Market decreased 26%—from 21 in 2013 to 15 in 2014. These quick sales are partly due to the continuing shortage of inventory, with the number of properties listed for sale down 20% this quarter from the same period a year ago. In Q1 2013 there were 48 properties for sale. In Q1 2014, that number decreased to 38. With so few properties on the market, buyers are rushing to make offers when they see something they like.
This market is a great example of the law of supply and demand in action. With little supply and lots of demand, median sold prices increased an astounding 54% from $1,137,500 in Q1 2013 to $1,755,000 in Q1 2014.
What does this mean? Will prices continue to rise into the stratosphere?
It’s difficult to predict how much more a house can cost here. When you see a little two bedroom, one bath house on the market for well over a million dollars, you wonder if these prices can be sustained. I am starting to see buyers who wanted to live in Menlo Park, but who are so frustrated by escalating prices that they are now looking in Redwood City or San Carlos instead.
Of course, there are always the newly minted, high-tech millionaires who have cash and are ready to spend it. They have the optimism to drive this market, which is becoming too rich for the average buyer who doesn’t have lucrative stock options.
Now back to real estate cycles.
Here’s a graph of the sold prices in this area over the last nine years (which is as far back as our data goes):
After increasing 30% from 2005 to 2008, prices plummeted 28% in 2009. It then took about four years—until 2013—for prices to recover to their previous highs of 2008. Prices went up for about four years, spiked and then fell dramatically. Home prices have been rising for four years now, so we may be near the top of this real estate cycle.
Of course, these numbers were affected by the big financial crisis in 2008. Nobody expected that, just like we couldn’t foresee the dot-com bubble burst from earlier in the decade that also led to lower real estate prices. The point is that even though we are riding high now, there is no guarantee that prices will continue to climb, especially at this accelerated rate.
Nobody knows for certain where prices are headed.
What we do know is that right now prices are at record highs. If you are thinking of selling anytime in the next few years, now could be the opportunity of a lifetime.
* Menlo Park East of El Camino Real includes the area located between El Camino, Encinal Avenue, 101, and San Francisquito Creek. This area includes the following neighborhoods: Linfield Oaks, Felton Gables, Park Forest, Seminary/Vintage, Menlo Oaks, The Willows, Suburban Park, Flood Triangle, Lorelei Manor, and North Fair Oaks.
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