It may be less than 900-square-feet, but a charming bungalow just a short walk to all of downtown in Palo Alto, California has listed for a whopping $2.6 million - a prime example of the housing affordability crisis ravaging many neighborhoods in California and beyond.
At 897 square feet, that translates to more than $2,800 per square foot - an astonishing number expected of a luxury penthouse in New York City and or Miami.
According to the Zillow, the bungalow was recently remodeled with “spacious” two bedrooms and a “large” living room with a modern ktchen.
There is even a converted garage (200sf+/-) with skylights & french doors where Facebook or Tesla employee(s) would be more than willing to rent the space for a few thousand dollars per month, which would cover about 20 percent of the $10,000 estimated mortgage per month for the bungalow.
“If you look globally, London has remained strong. New York has remained strong. We have a lot here. We have people coming in from all over the world,” McCarthy told CBS San Francisco.
Median home price in the U.S. grew 8.7 percent in April, for a y/y increase to $215,600, Zillow reported last month. To gain perspective of the bubbly real estate market in Palo Alto, consider the median home price is $2,900,000 — that is roughly 13.5 times higher than the average median home somewhere in middle America.
Talk about an uneven economy…
The living room of this $2.6 million, 900-square-foot home in Palo Alto, California. (Source: Zillow)
As home prices continue to rise, the kitchen of this $2.6 million bungalow in Palo Alto, California is tiny with an original stove from the 1920s. (Source: Zillow)
The master bedroom of the $2.6 million bungalow in Palo Alto, California. (Source: Zillow)
What a $2.6 million backyard looks like in Palo Alto, California. (Source: Zillow)
Several large cracks in the cement driveway. (Source: Zillow)
McCarthy said the region had a very robust spring — and in her view: “isn’t showing signs of slowing.”
“If the price tag sounds far-fetched, consider that a house down the street was originally listed for $1.8 million and recently sold for nearly $2.25 million — and it was uninhabitable. And when you look outside this bubble, it’s really crazy. But this is reality for here,” McCarthy said.
So in McCarthy’s professional view: residential real estate in Palo Alto is a “bubble.”
The party in Palo Alto is likely in the later innings, particularly after the Federal Reserve raised its key interest rate by 0.25 percent last week.
Citing robust growth and a “generational low in unemployment”, Federal Reserve Chairman Jerome Powell emphasized the case for continuing to raise interest rate hikes is “strong.”
Powell pointed out that the last two Fed-induced bubbles were created by “financial imbalances” rather than inflation — the 2008 financial crisis and Dot Com bust in the early 2000s.
“While some asset prices are high by historical standards, I do not see broad signs of excessive borrowing or leverage. In addition, banks have far greater levels of capital and liquidity than before the crisis,” Powell said.
While Powell promises everyone that today is not a bubble, he does refer to “some asset prices are high by historical standards.” It is likely; he was indirectly referring to real estate, as storm clouds are starting to gather over the industry due to several years of rate hikes. Notice over the course of three decades, the Fed has managed to pop every real estate bubble.