Home price insanity: $2.6 million for 900 square feet

Skyrocketing home prices in Silicon Valley

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. 

The 9 U.S. zip codes with the highest real estate returns
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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