Atlas of Luxury 2020
May 13, 2020
Where is Luxury Located?
Since 2015, the median Palo Alto home sold for $2.9 million. The median Menlo Park home sold for 2.34 million. That’s a 24% difference. Are all Palo Alto homes really 24% “better” than all Menlo Park homes? Of course not! But unless we use the data better, we can get tricked. And we, dear reader, are way smarter than that.
What is “luxury”, really? We’ll look at several factors— sale price, lot size, house size, dollar per square foot, pools, and source of financing— and see how much they cluster in any area. Maybe you have your own definition of what it is. Try to find your street in the charts below; it’s fun!
We’ve all heard the manta that what matters in real estate is “location, location, location”. But a lot of real estate information about location gets collapsed and compressed into a processed wiener of summary information— losing valuable insights along the way. Dear reader, we will serve you up a healthy meal of the whole dataset at once, to gawk and gander at where the biggest homes really are, where dollar per square foot is the highest, and even where the all-cash buyers are—all in glorious visual detail and grandeur. We’re going to Jackson Pollock scatterplot real data all over latitude and longitude, and attempt to gain insights into where luxury is in the heart of Silicon Valley. Our local Atlas of Luxury, if you will. Fasten your seat belt and get ready for a fun ride!
How’re We Going To Do This?
We’re going to look at three municipalities – the City of Menlo Park, the City of Palo Alto, and the Town of Atherton. Specifically, we use 3,927 data points of single family residence transactions that closed on the public market (MLS data) between 1/1/2015 and 7/15/2020. So about 5.5 years of data. We limited it to relatively recent data to keep figures like “dollars per square foot” (“$/ft2”) meaningful, but even so we must recognize that there was inflation between 2015 and 2020 (+7% in Palo Alto’s Average Sales Price, +22% in Menlo Park, and +27% in Atherton). So it’s a tradeoff between getting enough data to meaningfully fill a map and show trends, and keeping the date range tight to keep the data meaningful.
Are we missing a lot by not having the off-market sales included? We’ve demonstrated in private analyses with clients that, across a large enough sample, private sales in Atherton are not qualitatively different from the on-market data… the average size and price are similar. There are data availability issues with off-market info. Plus this is a trend/comparison analysis, so we think it is acceptable. And it’s a ton of effort for little payoff in this case. So we’re comfortable to omit off-market sales here. (Mind you, if we’re pricing your 2 acre Atherton home for sale, you bet we’ll be using off-market data!)
We scrubbed out a few data points where there were obvious data entry problems, and omitted 18 sales in the large but mostly unpopulated Palo Alto foothills area. Sorry, neighbors of the lovely Palo Alto Hills Golf and Country Club!
Our Base Map
Hey, you’re a local like us. We moved from NYC 13 years ago to North Palo Alto and plan to never want to leave. So you know that the main traffic arteries of the Atherton-Menlo Park-Palo Alto area are the 101 to the northwest, the 280 to the southeast. Easy, right? Let’s add in the commercial centers. Many people often want to live inside walking distance, but outside noise distance, of a vibrant downtown. Commercial areas of interest are shaded in the diagram below:
Density
Now let’s take a look at where all the market purchases happened since the start of 2015:
The closeness of the dots could indicate two things: lots of turnover in a specific area (unlikely), or the lot size (quite likely). Big lots just have a lot more space around them. Sparsely dotted areas, like West Atherton, have a lot of 1 acre+ expansive properties. Heavy concentrations, like North Fair Oaks and University Heights, reflect small lots and density. Though technically not a part of Menlo Park, these two areas are charted here as if they are.
We can see big gaps where there are no residential properties, like Palo Alto’s office space areas flanking Page Mill, or the hole in the middle of Atherton where Menlo School, Scared Heart, and the Circus Club are. There is a large Veteran’s Affairs facility on Willow near the 101 that locals often don’t think much about. And Menlo Park has a wonderful area of Burgess Park and City buildings which appear like blank space in this kind of map.
Town and Counties
Let’s start coloring all the dots. Here, Atherton (population: 7,187) is in blue, Menlo Park (34,549 ) is red, and Palo Alto (66,666 people) is in orange). The first two are in San Mateo county, while Palo Alto is in Santa Clara county:
Neighborhoods
These 3 municipalities have some differences between them, but the character often changes even more when one moves from neighborhood to neighborhood. Here’s the cheat sheet for the names of the areas to follow:
Sales Price
Now its time to get to the good stuff: where are the expensive homes? Let’s color the most expensive as deep blue, and the most affordable as deep yellow:
Wow, now we are seeing some trends! It is true what they say about Atherton; just look at that cluster of dark blue… and the distance between them suggests that each property is pretty sizeable. Atherton really dominates our area’s $10,000,000+ homes, and this chart shows by just how much. The other clusters of dark blue are in Old Palo Alto, with Palo Alto’s Crescent Park neighborhood also sporting a few.
As you shift your eyes to see the light blue (a still significant $7.5-$9.9 million), we see that Central Menlo and Lindenwood are strong players, along with North Palo Alto in general.
How about the far opposite end… homes below $2.5 million? This is a good time to remind ourselves that, according to the Federal Reserve, the median American home price in Q2 2020 is $313,200, so North Fair Oaks and Belle Haven may look like laggards on this chart, but are still tremendous assets by most Americans’ standards.
Lot Size
What if you want an acre or more? What if privacy is important for you? Where are you likely to find the kind of place you will love?
Looks like Atherton again! Atherton is the king of big lots in this area. A few large lots exist in Palo Alto-- notice especially the bright cluster at the south… some people assume that Esther Clark Park is Los Altos, but it really is Palo Alto!
One thing many of our clients need to decide right away is whether they like the “eclectic village” of Palo Alto, with neighbors you see every day, or the “stately grandeur” of Atherton, with its permissive building codes and rural character. Central Menlo is physically and stylistically in-between. This map also illustrates the different municipal guidelines: Atherton will not let you subdivide your lot to smaller than an acre, whereas Palo Alto will not allow you to combine lots to result in more than 9,999 square feet. Atherton forces big while Palo Alto forces small.
The smallest lots are in Belle Haven, North Fair Oaks, the unincorporated Menlo Park area around Alameda de las Pulgas, College Terrace, and in the multi-city strip between El Camino and Alma.
House Size
This one is a bit interesting, as West Atherton still dominates, but not quite as much. Some Atherton properties are large lots with older, smaller houses. Palo Alto’s building code forbids new construction to be over 6,000 square feet.
Dollars Per Square Foot
Let’s bring it all together now… sure, Atherton has the largest lots, but not everyone wants that much home. Realtors fall back on $/ft2 as the primary way to compare “value” and “quality” of homes for this reason. Are Atherton homes also the leader in $/ft2?
Well, not so obviously! By this metric, West Atherton looks a lot like Central Menlo and the majority of Palo Alto! The biggest mass of orange now looks to be all of North Palo Alto, but high $/ft2 can really be found in almost every neighborhood.
Dollars per square foot can be pushed up for several reasons. New construction is worth more than old. Small houses on large lots have unusually high $/ft2, as there are not that many square feet of house to divide the land value into. Quality and beauty sell for more than their opposites. Desirable neighborhoods go for more than something right on the highway. Palo Alto and Menlo Park have great public schools, which bump their number up. All of this gets factored in above… which is one of the best ways to chart where luxury actually is… it’s not located “somewhere else”—its all around us.
We again see Belle Haven, North Fair Oaks, University Heights, and parts of the Willows pulling up the rear.
Pools
Pools are a classic sign of luxury. So where are they?
A high percentage of West Atherton and Lindenwood have pools, whereas the other areas are all “somewhat pooled”.
Financing
Any home buyer knows the excitement (some would say too much excitement) of making an offer and never knowing if the other offers are “all cash” or financed via a loan. Sellers prefer all cash, as fewer things can go wrong and the close can usually be quicker. But what are my odds that the competition in an area is going to be all cash? The “richest” neighborhoods are probably cash every time, right? Let’s look:
It is more of an even mixture than many assume! We do see a higher ratio of green in the most affluent areas and more yellow in South Palo Alto, Belle Haven, and North Fair Oaks, but it is a gradient, not a stark contrast.
Conclusion
Every home buyer has a different definition of luxury, just as every seller has a different definition of when it’s time to sell. Data exists to graph so much more… bedrooms, bathrooms, garage space, year of construction, method of heating, how long homes took to sell… so many cool maps but not enough time! We can and should analyze data in creative ways to spot arbitrage opportunities and reveal hidden truths. But market metrics are only part of our effort to chart luxury.
Another part of luxury is also the ability to feel happy with the financial obligations of home ownership; its no fun to own a giant lawn if the water bill eats up half your income. And people need different things at different stages of life. Perhaps most importantly, homes are ultimately just fancy boxes for experiences. They are facilitators of a life well-lived, not the purpose of life. To us, luxury is how you define it, and whatever you choose, it is our job to help you realize it.