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Small homes sell for big bucks in Palo Alto

In the heart of Silicon Valley, there's been a big jump in the price of small houses.

Palo Alto, California, is one of the most sought-after communities in the Bay Area, with its elegant downtown, respected schools, and proximity to the headquarters of technology giants such as Facebook and Google.

In fact, demand is so strong in Palo Alto, and inventory so lean, that homes that look more like bungalows are now selling for millions.

For example, a home at 151 Kellogg in Palo Alto with two bedrooms and one bathroom, and only about 990 square feet of living space, recently sold for $3 million.

That's not unusual.



In 2014, the median price of a home in Palo Alto with less than 1,000-square-feet of living space surged 40 percent to $1.7 million, according to DeLeon Realty, a real estate firm based in the city.

Realtors say a lot of that surge can be explained by the flow of new tech money in the area, which is driving prices higher, as well as an influx of international investors looking to capitalize on a red hot real estate market.

"About 40 percent of these buyers are investors from overseas," said Ken DeLeon, the founder of DeLeon Realty.

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Specifically, he says there are many Chinese buyers, who intend to tear down the homes and build new ones.

Courtney Charney of Alain Pinel Realtors says some of her Chinese buyers are also scooping up homes for their relatives. For instance, she sold a $2.3 million home in Palo Alto to a couple who bought the property for relatives moving to the Bay Area from China.

Interested in buying a home in Palo Alto? Good luck finding one.

As of this week, there were only 11 homes on the market, according to Carol Carnevale, also of Alain Pinel. She said five of those homes are priced at $4.9 million and higher.

The cheapest, Carnevale says, is a 1,100-square-foot home selling for about $2 million.

Of course, such a surge in home prices brings up the question of whether there's a housing bubble developing in Silicon Valley. Nancy Wallace, a professor at the U.C. Berkeley Haas School of Business, doesn't think so. She says Palo Alto has enjoyed a significant increase in income growth, which should support home prices.

"Given what's going on with income growth, unless there is a crash in tech, I see this as sustainable in the near term," Wallace said.

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