Home price insanity: $2.6 million for 900 square feet

If you're looking for homes in Palo Alto, Calif., our sympathies to your bank account. In the most recent example of home prices gone bonkers, a two-bedroom, one-bathroom cottage has been listed for $2.6 million. 

At 900 square feet, that means you'd be paying more than $2,800 per square foot -- an eye-popping number more typical of a luxury penthouse in Manhattan than a suburban neighborhood. The cottage has a detached garage, but only outside basement access for the laundry room. There have not been any offers yet, though realtor Laura McCarthy says she had a number of showings. 

"If you look globally, London has remained strong. New York has remained strong. We have a lot here. We have people coming in from all over the world," McCarthy told KPIX. 

The median home price in the U.S. rose 8.7 percent to $215,600 in April compared with a year earlier, Zillow reported last month. In San Jose, Calif., home values rose 26 percent in April to a median $1.26 million

Higher mortgage rates add to the challenge of finding an affordable home, and some buyers may be rushing to make a purchase in case the Federal Reserve -- which hiked its key interest rate by 0.25 percent last Wednesday -- boosts rates further this year. Fixed rates for 30-year mortgages are now at about 4.62 percent, hovering near their highest level since May 2011, Freddie Mac reported on Thursday. 

McCarthy said the market had a very strong spring -- and isn't showing signs of slowing. 

If the price tag sounds far-fetched, consider that a house down the street was originally listed for $1.8 million and recently sold for nearly $2.25 million -- and it was uninhabitable. 

"And when you look outside this bubble, it's really crazy. But this is reality for here," McCarthy said. 

-- CBS News' Aimee Picchi and Jillian Harding contributed to this report