This post first appeared in the November edition of Cirios Trends: Getting to the Bottom of the Housing Market

For this month’s zip code spotlight we head down the Peninsula to Mountain View, CA, home of Google Inc. and just up the street from rival Yahoo, headquartered in neighboring Sunnyvale.

For the past decade, the relationship between Google and wealth has been a rather simple one: As goes Google, so goes boatloads of cash (and hopefully long term economic stability). And while the Google Effect has been felt throughout Silicon Valley real estate markets, let’s focus on the market immediately in the company’s back yard.

Partly because of Google’s strong economic presence in the area, some neighborhoods have seen dramatic explosions in price in the last 10 years. This month’s zip code, 94040 which comprises the western portion of Mountain View, is no exception. As can be seen on the graph below, prices doubled from 1998 through the market’s peak in 2008.

However, recent price declines have hit the area hard, giving those looking for a mid-high end home a chance to squeeze into a market likely to be basking in the Google glow for years to come.

Looking more closely at the market, one finds a wide range of available properties. Currently available single family homes range from a $1.8 Million, 4 bed, 3 bath to a tiny 1-bedroom available for a “mere” $500,000. Over 70% of the properties in the area are listed at the million dollar plus level, so come ready to spend.

Schools in the area are terrific, consistently scoring in the 90th percentile of schools in the state. Downtown Mountain View has everything from shopping to nightlife. The city also boasts a bayshore municipal golf course and Shoreline Amphitheater (pictured below), a concert venue frequented by the biggest names in show business.

If you are lucky enough to work at Google, the commute from most parts of Mountain View is less than 10 minutes, and there are numerous other technology firms just minutes away. For the rest of us, Downtown San Jose is only 20 minutes away and San Francisco is somewhat farther, over 40 minutes in light traffic. CalTrain provides an excellent option for public transportation.

As the graph shows, prices are down ~20% in the zip since the peak, and a recent spike in supply is quickly subsiding. Ultimately, the extent to which prices can hold these levels is dependent on whether Silicon Valley’s up and coming home buyers continue to eye Mountain View as an attractive, desirable place to live.

This post first appeared in the February 2009 edition of Cirios Trends.

This being the inaugural edition of Cirios Trends, we’re giving our loyal readers two houses for the price of one. Let’s travel about 30 minutes south from San Francisco to Google Park – err, Menlo Park – where the tree-lined streets are paved with Internet gold.

The two houses below are on Hermosa Way, across the street from one another. We believe both owners are a touch too optimistic about finding a buyer at their current asking prices. The homes were listed during the same week back in September, and now appear engaged in a my-overpriced-house-is-less-overpriced-than-your-overpriced-house price war. Hard to imagine either owner is going across the street to borrow a cup of sugar. Here we have a microcosm of the current housing market – too much supply, each seller trying to undercut his neighbor.

Neighborhood Overview: Menlo Park is a very desirable location because of its great schools and proximity to major Silicon Valley job centers (including Google’s massive campus in nearby Mountain view). These factors, coupled with its mild climate, have ushered in an era of unprecedented prosperity for this once middle class town.

Property values began to falter in 2001 as the dotcom bubble burst, but the emergence of Google almost single handedly reversed the market’s fortune. Many freshly made millionaires bought older homes, tore them down and erected McMansions of their own. Now, with many residents seeing their paper wealth evaporating on Wall Street, Menlo Park property values are starting to come back to earth.

House #1: 800 Hermosa Way, Menlo Park, CA 94025

Original List Price: $4,250,000
List Date: 9/7/08
Current List Price: $3,675,000
Previous Sale: $2,900,000
Previous Sale Date: 3/12/2004
Estimated Down Payment: $735,000
Estimated Monthly Payment: $22,622*
Bedrooms: 5; Bathrooms: 4+
Liv. Area: 5,350 sqft; Lot Size: 21,816 sqft (0.5 acres)
Positives:
+ Large house, more living area than most comps
+ Upgrades nearly throughout (except kitchen)
+ Close to all amenities, schools, shopping, freeways
Negatives:
- No sales >$3 million in the area in the last 3 months
- Many high end homes listed, lots of competition
- 5,000 square may be too much house for some buyers
Value Analysis:
The world of potential buyers for this house is very limited, he or she would need to have the income and job security to afford a $22,000 monthly payment. Many comparable, if not quite as large, homes are available for as much as $1million less. The comp sale below is inferior, but a better indication of demand in the area.

HOUSE #1 CIRIOS VALUE: $2,950,000
Over-listed Amount: $725,000 (24.6%)
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Comparable Sale: 345 Vine St, Menlo Park, CA 94025
Sale Price: $2,420,000
Sale Date: 12/16/2008
Bedrooms: 5; Bathrooms: 4
Liv. Area: 3,220 sqft; Lot Size: 8,350 sqft (0.2 acres)
Comparison to Subject: Inferior

House #2: 777 Hermosa Way, Menlo Park, CA 94025

Original List Price: $4,495,000
List Date: 9/5/08
Current List Price: $3,975,000
Previous Sale: $2,295,000
Previous Sale Date: 6/19/2002
Estimated Down Payment: $795,000
Estimated Monthly Payment: $24,469*
Bedrooms: 4; Bathrooms: 3;
Liv. Area: 3,302 sqft; Lot Size: 21,708 sqft (0.5 acres)
Positives:
+ Excellent condition, inside and out
+ Updated kitchen
+ Reasonably sized home that conforms to the area
Negatives:
- No sales >$3 million in the area in the last 3 months
- No exceptional features, except the kitchen and lot
- Significantly over-listed, smaller than its listed neighbor
Value Analysis:
The world of potential buyers for this house is also very limited. House #1 is larger and newly upgraded, and should sell for more than the subject. The subject’s conformity and smaller size could attract more buyers looking for an easier home to maintain. The comp sale is inferior, but more similar to the subject than House #1.

HOUSE #2 CIRIOS VALUE: $2,700,000
Over-listed Amount: $1,275,000 (47.2%)
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OVERALL COMMENTS:
Both owners are faced with a similar dilemma: Do I lower my asking price until I get an offer, or take my home off the market and hope for a rebound? Ultimately, both sellers need to be more realistic with their expectations of how much their homes are worth.

* Mortgage payments are based on the house being bought at the list price with 20% down and a 7.0% 30yr fixed loan, monthly tax cost included.