A sign of gloomier times as prop­erty gold rush slows down around Sil­i­con Val­ley

A drought of high-end buy­ers has hit the once unas­sail­able mar­ket for multi-mil­lion homes in Amer­ica’s most ex­pen­sive neigh­bour­hoods, re­ports Ali­son Vek­shin

Irish Independent - Business Week - - TECHNOLOGY - Weck­ler Adrian WAder­cikalner

ACUSTOM-BUILT home in the heart of Cal­i­for­nia’s Sil­i­con Val­ley had its price cut by $500,000 last week after sit­ting on the mar­ket since the end of March – a move that would’ve been al­most un­fath­omable a year ago and a sig­nal that fren­zied de­mand has peaked.

The six-bed­room, five-bath­room house in Palo Alto – lo­cated blocks from Stan­ford Univer­sity and the homes of Google co-founder Larry Page and Steve Jobs’s wi­dow, Lau­rene Pow­ell Jobs – is now listed for $ 7.5m (€6.7m).

The plush prop­erty joins a grow­ing in­ven­tory of high- end homes in the area that are tak­ing longer to sell.

“We’ve re­cently no­ticed a slow­down,” Jack Wood­son, who works at Alain Pinel Real­tors in nearby Menlo Park, said on a tour of the house in the Old Palo Alto neigh­bour­hood. “Buy­ers are tak­ing more time to de­cide about mak­ing of­fers.”

Sil­i­con Val­ley, the most- ex­pen­sive US hous­ing mar­ket, is see­ing a pull­back by the wealth­i­est home­buy­ers after a fouryear real es­tate boom marked by bid­ding wars and mul­ti­mil­lion- dol­lar prices.

Stock-mar­ket tur­moil, a drop in for­eign in­vestors and con­cerns of a tech­nol­o­gyin­dus­try slow­down are cool­ing de­mand at the high end, even as in­ter­est re­mains ro­bust for more mod­er­ately priced prop­er­ties.

In Palo Alto, an ul­tra-wealthy city that’s home to many Google and Face­book ex­ec­u­tives, homes cost­ing more than $ 5m were on the mar­ket for a me­dian of 16 days in April, com­pared with 11 in the same month in 2015 and 10 in 2014, ac­cord­ing to data from Irvine, Cal­i­for­nia-based John Burns Real Es­tate Con­sult­ing.

The 11 ac­tive list­ings in that price range as of May 14 have been on the mar­ket a me­dian of 30 days.

While that’s quick by most stan­dards – across the US, the me­dian time on the mar­ket is 67 days – it’s a de­par­ture from re­cent years, when newly-minted mil­lion­aires from tech ini­tial public of­fer­ings raced against buy­ers from China to scoop up anaemic in­ven­tory.

“The seem­ingly in­ex­haustible well of very high- end buy­ers has proven ex­haustible after all,” said Dean Wehrli, a se­nior vice pres­i­dent at John Burns.

“The peak is be­hind us, and that’s be­com­ing clearer and clearer to builders and buy­ers.”

The San Jose metropoli­tan area, en­com­pass­ing Sil­i­con Val­ley, is the most ex­pen­sive US hous­ing mar­ket, with a me­dian sin­gle-fam­ily home price of $ 970,000, ac­cord­ing to the Na­tional As­so­ci­a­tion of Real­tors. In Palo Alto, the me­dian home price was $ 2.5m in the first quar­ter, data from Zil­low show. That’s higher than San Fran­cisco, at $1.1m, and New York, at $ 616,100.

Across the coun­try, luxury-home sales are cool­ing as tur­moil in the global econ­omy and the prospect of higher in­ter­est rates wor­ries fi­nan­cial mar­kets. Sil­i­con Val­ley has the added pres­sures of be­ing closely cor­re­lated to the tech in­dus­try and a top tar­get for for­eign buy­ers.

Ven­ture- cap­i­tal in­vest­ments in Sil­i­con Val­ley fell al­most 20pc in the first quar­ter from a year ear­lier to $ 4.9bn, ac­cord­ing to an April re­port from Price­wa­ter­house­Coop­ers.

Chi­nese buy­ers – hit by a slow­ing econ­omy and gov­ern­ment re­stric­tions on how much money can leave the coun­try – have slowed pur­chases after they had “re­ally been driv­ing the mar­ket,” said Wood­son of Alain Pinel.

“We’re prob­a­bly mov­ing to­wards nor­mal­i­sa­tion,” said Katharine Car­roll, vice pres­i­dent at Pa­cific Union Real Es­tate in Palo Alto. “Buy­ers see that they have a few more op­tions. They don’t feel the ur­gency that they have to de­cide on some­thing right away and put an of­fer in. They can kick the tyres a lit­tle bit more.”

The sale of luxury real es­tate is slow­ing statewide, with homes cost­ing more than $ 3m sit­ting on the mar­ket 52.5 days in the first quar­ter, com­pared with 40 days the year be­fore, said Jor­dan Levine, an econ­o­mist at the Cal­i­for­nia As­so­ci­a­tion of Real­tors in Los An­ge­les.

In Santa Clara County, home to Palo Alto, there were 13 sales of homes cost­ing more than $ 5m in the first quar­ter, down from 20 a year ear­lier, he said. In nearby Los Al­tos, there were six ac­tive list­ings of homes cost­ing more than $ 5m on the mar­ket for a me­dian of 25.5 days as of May 14, while the 25 list­ings in Ather­ton were on the mar­ket a me­dian of 100 days, ac­cord­ing to John Burns.

“Given that a larger pro­por­tion of the $ 3m-plus cat­e­gory is pur­chased with cash, or folks use some of their other as­sets to make those kinds of pur­chases, I think they’re more sus­cep­ti­ble to stock-mar­ket volatil­ity than your en­try-level buyer would be,” Levine said. “That’s one of the big driv­ers of the cur­rent slow­down.”

There’s no let-up in the de­mand for homes in the $ 2m to $ 3m range. Real­tors say those prop­er­ties are still gen­er­at­ing mul­ti­ple of­fers and sell­ing above ask­ing prices be­cause they are still af­ford­able to soft­ware en­gi­neers.

Ag­gres­sive hir­ing at Face­book and Google is prop­ping up the mid­dle seg­ment of the hous­ing mar­ket in Sil­i­con Val­ley, said Ken DeLeon, founder of DeLeon Realty in Palo Alto.

“Palo Alto is at a cross­roads, where some homes are do­ing very well, and some homes are lin­ger­ing that last year would have sold with mul­ti­ple of­fers,” DeLeon said. “When they do sell, it’s when the seller cuts the price be­low what they would have got­ten last year.”

High- end buy­ers are pick­ier and are more likely to let a prop­erty go, in­stead of com­pet­ing with mul­ti­ple of­fers and an auc­tion dy­namic that led to homes sell­ing well above ask­ing price un­til very re­cently, he said. “I’m having buy­ers who are much more open to wait­ing, to tak­ing a risk that the home might sell,” he said. “There’s just not that mo­ti­va­tion.” (Bloomberg)

The home listed for sale at $7,498,000 in Palo Alto – a price cut of $500,000. Photo: Michael Short/Bloomberg

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