Real Estate Freak Out - California Style

Things continue to go nuts in Bay Area real estate. I received a quarterly update from a local, Pennisula realtor today. This statistics for Atherton, in particular, are astonishing. The average price of a home in Q3 2004 was $3.1 million. The average price of an Atherton home in Q4 2004 jumped $1.7 million to $4.8 million. Every home buyer in Atherton had one thing in common....Google. Every new home owner in Atherton worked at Google. Incredible. Massive price inflation is sure to continue through the Spring as the next round of Google options come due in February 2005.

Is this irrational exuberance or simply a change of mind set? Manhatten saw a similar run up in real estate prices in the 80's and while apartment and condo prices on the island dipped a bit for a few years, an investment in a 2 bedroom, 1 bath apartment on the Westside would have netted you a healthy triple digit return if you held it today.

A friend of mine is in the market for a house. She and her husband found a cute 1400 sq. ft., 3 bedroom, 2 bath house in Palo Alto on a 4500 square foot lot. It was small, but nice enough, and turn key enough, to put in a bid for the $1 million structure. Too bad...they weren't even close on their bid. The house sold for 20% over asking for $1.2 million and there were a whopping 26 offers on the cottage.

Ridiculouly high real estate prices in the Bay Area are here to stay.