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The second quarter of the year – April, May and June – is traditionally the most active season for residential real estate, typically bringing the highest prices of the year. This year, however, deviated from that trend.
Tech-heavy stock indexes peaked in late February, followed by increased global trade uncertainty in early April. While the markets gradually rebounded by the end of June, the volatility cooled buyer sentiment on the Peninsula as household wealth in our area is closely tied to tech equities.
An unseasonal spring
Midpeninsula cities showed varied performance, but all reflected an overall unseasonal softening, or cooling down. The number of single-family homes sold in Palo Alto declined by about 7% compared to the same time last year, despite a 14% increase in new listings on the market.
As a result, the “absorption rate” – the number of homes sold relative to the number of homes listed – dropped from 61% in the first quarter of this year (January-March) to 57% in the second “spring” quarter.
The median price of single-family homes sold in Palo Alto fell 7% quarter-over-quarter, from $4 million in the first quarter of this year to $3.7 million in the second quarter.
Los Altos, on the other hand, experienced an increase in sales volume and an improved absorption rate. Sales rose 7%, and 70% of homes listed in the second quarter found buyers. Even so, the median sale price dipped 10% to $4.85 million, down from $5.4 million compared to the start of 2025. The market also saw noticeable softening in competitive overbidding.
In Menlo Park, sales volume rose compared the first quarter of 2025, and prices held steady at $3.4 million, up 9% compared to the same time last year. The absorption rate, however, declined by 7 percentage points, landing at 58%.
A more divided market
While the frenzy at the start of the year has clearly faded, the overall market shows no signs of a broad correction (aka, a moderate and temporary decline in property values). Instead, we’re seeing an increasingly divided market: Some homes are receiving 10-plus offers, while others sit idle.
This divergence is visible when monitoring how long a home stays on the market before finding a buyer. The median days a home stayed on the market remained at eight during the spring market for both Palo Alto and Los Altos. However, as of July 10, over half of the 62 active single-family home listings on the Multiple Listing Service in Palo Alto had been on the market for more than a month, and one-third for over two months.
Homes that are seeing high demand are typically move-in ready, four-plus bedroom properties in ideal locations with good public schools. One such listing in Palo Alto’s Midtown neighborhood, despite hitting the market right after the school year ended when many local families were away, attracted over 10 offers and sold for $800K over asking price, in the high $5-million range.
In this market, even the “right” product, however, must be priced strategically – an inflated listing price can easily kill buyer urgency and stall momentum.
Palo Alto sees record-breaking luxury sales
The Peninsula’s luxury segment has remained notably strong, especially in Palo Alto. In the first half of this year, 13 homes in Palo Alto sold for over $8 million, compared to nine sales during the same period last year – marking a record high for any six-month span. The previous peak was 11, recorded in the second half of last year.
What’s especially noteworthy is the speed of these transactions. Of the 13 homes that sold for over $8 million this year, seven found buyers in less than a week. By contrast, all high-end sales in the first half of last year took longer than a week, averaging 47 days on market.
The Old Palo Alto neighborhood accounted for six of Palo Alto’s 13 luxury sales this year. Inventory across all price points in Old Palo Alto was up 21% year-over-year. The highest sale recorded on the MLS in the first half of this year was an updated 105-year-old home on a .6-acre lot in Old Palo Alto, which closed at $18 million. This property had tested the market for over five years, originally listed at $25 million, reflecting a long learning curve on both the seller and buyer sides. The seller ultimately adjusted expectations, while the buyer recognized the scarcity of such a huge lot (the equivalent of about 26,000 square feet compared to the neighborhood’s average lot size of 9,000-10,000 square feet) in a prime location.
The high-end market only opens up when conditions are strong enough for sellers to list and for buyers to move confidently. No surprise, affluent buyers remain relatively insulated from broader economic volatility. In Silicon Valley, the pace of wealth creation, driven by continued innovation, often outpaces home price appreciation, especially for the most desirable properties.
A bumpy second half
While tech stock indexes have rebounded to new highs since the April dip, the rally has been concentrated in a small group of companies. This dynamic highlights the growing wealth disparity, even within the tech sector.
Ongoing global trade uncertainties and a shifting immigration landscape could lead to rising construction costs, in both materials and labor. Whether falling interest rates will be enough to bring developers back to the table to digest the region’s small inventory remains to be seen.
In the meantime, expect the “divided” market dynamic to persist — where standout properties move quickly and command strong offers, while others linger unless priced and positioned with precision.
Contributing writer Xin Jiang is a real estate agent with Compass in Palo Alto.
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