Silicon Valley Homebuilder Finds A Profitable Niche

The U.S. housing market may be singing the blues, but there are pockets where home sales are rising. James Witt, a homebuilder in California's Silicon Valley, is surviving and thriving thanks to his luck, location and knowledge of the local market.

Witt is a tall, lanky man whose graying, long hair suggests an actor in a Western movie. He's standing on his 3-acre property in Palo Alto, which includes an updated old farmhouse and a yard with a pair of donkeys. One, named Perry, has an interesting pedigree.

"He was actually modeled for the donkey in the movie Shrek," Witt says.

On the weekends, kids and the parents flock to this yard, Witt says, to see something more than a novelty.

"I think people want to touch something and see something that makes sense," he says. "They want to get back to something that wasn't crazy — that wasn't all about technology, that wasn't about some tiny little screen."

Filling The Niche

Yet that little screen helped create the prosperity in Palo Alto, where good schools, good weather and a great location next to Stanford University create a built-in demand for a limited supply of homes. Many of those houses, mass-produced after World War II, are showing their age.

"Those homes have now reached past their life expectancy, and they needed to be replaced, older homes are energy inefficient, so that's the niche I fill," Witt says.

So with his local savvy, and a willingness to risk and fail — an attitude that is prevalent in Silicon Valley — Witt has torn down and rebuilt more than 50 homes in one of the strongest real estate markets in the country.

"The houses that we're buying to tear down are over a million dollars now," he says.

But there are limitations on tear downs. Besides, some of the houses in Palo Alto are considered almost sacred.

Denise Simons, a Palo Alto realtor, stands in the middle of a modest home of distinctively modern but simple design. It was built by the real estate developer Joseph Eichler in 1973. The house has four bedrooms, three baths, an office, a pool at the back.

"It's ... great architecture: high ceilings, open floor plan," Simons says. "We've got an atrium that lets in a lot of the sunlight."

She says a house like this, just under 2,100 square feet, could sell in the neighborhood of $2 million.

Insulated From Economy

To many people, that might sound like crazy money. A million bucks for a tear down, $2 million for a house the buyer might want to remodel again. This is in a region where the median home price is $351,000. But that's Silicon Valley — where there's no shortage of buyers, Simons says.

"A lot of the buyers are social-networking people, you know, the high-tech: Facebook, LinkedIn, Google, Cisco," she says. "There's a lot of all-cash buyers here. So we're seeing a lot of that."

Larry Rosenthal, a housing expert from University of California, Berkeley, says even without the current tech boom, some communities like Palo Alto, or, say, Cambridge, Mass., aren't as susceptible to shocks in the economy because of their proximity to nearby universities.

"Just because there are hard times doesn't mean all places share in the struggle equally," he says. "These localities, because of their own assets, assets that are well-insulated from ups and downs of the economy, are likely to maintain their property values and maintain their positive outlook on life."

Just ask James Witt.

"This is a house I used to walk by when I was a boy," he says.

He's standing next to a lot — empty except for the frame of a foundation for a new five-bedroom home like the one next-door that he built and sold last year. We're not talking about McMansions. Witt's homes are built to fit it into the neighborhood with a design and scale he calls "stripped-down modern."

'It Could Change Tomorrow'

He doesn't take his success for granted, either. After all, he has weathered four recessions — long enough to worry about another one.

"When I say it's a bubble, I say that because it could change tomorrow," he says.

But Witt knows this new house will sell. The average sale price of a home jumped 10 percent last year. Companies are hiring, and there's the anticipation of Facebook going public.

"People are already speculating on what stuff's going to be worth when these IPOs take place, and they are setting their sale prices based on things that haven't happened yet," he says. "And, again, it's a unique part of the bubble we're living in here in the Silicon Valley."

Bubble or no bubble, this market is making homebuilder Witt a very busy man.

Copyright 2012 National Public Radio. To see more, visit http://www.npr.org/.