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New numbers out today from the Commerce Department show that 2011 was the worst year on record for single-family home construction. And it was the third-straight year of dismal news on the housing front. But home sales are rising in some places. Consider California's Silicon Valley. NPR's Richard Gonzales visited a homebuilder there who is thriving - not just because of location, location, location, but also because of luck and knowledge of the local market.

RICHARD GONZALES, BYLINE: James Witt is a tall, lanky man whose graying, long hair suggests an actor in a Western movie. He's standing on his three-acre property in Palo Alto, which includes an updated old farm house and a yard with a pair of donkeys, one with an interesting pedigree.

JAMES WITT: Oh, there they are. This is Perry. Perry's a miniature. He was actually modeled for the donkey in the movie "Shrek."

GONZALES: On the weekend, kids and their parents flock to this yard, Witt says, to see something more than a novelty.

WITT: Because I think people want to touch something and see something that makes sense. You know, the world has become so off of its hinge, they want to get back to something that wasn't crazy, that wasn't all about technology. It wasn't all about some little screen.

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

WITT: So those homes are now reached past their life expectancy, and they need to be replaced. Older homes are energy inefficient, so that's the niche that I fill.

GONZALES: So with his local savvy and a willingness to risk and fail - an attitude that's prevalent in Silicon Valley - James Witt has torn down and re-built more than 50 homes in one of the strongest real estate markets in the country.

WITT: The houses that we're buying to tear down are over a million dollars now.

GONZALES: But there are limitations on teardowns. Besides, some of the houses in Palo Alto are considered almost sacred.

DENISE SIMONS: Yeah, she said do the trim in bone and keep that wall white.

GONZALES: Denise Simons is a Palo Alto realtor.

SIMONS: So this is an Eichler, built in 1973. It's one of the later models that was built by Joe Eichler.

GONZALES: Simons is standing in the middle of a modest home of distinctively modern, but simple design.

SIMONS: This is a four-bedroom, three-bath home, pool in the back. Great architecture - high ceilings, open floor plan. We've got an atrium that lets in a lot of the sunlight.

GONZALES: Simons says a house like this - just under 2,100 square feet - could sell in the neighborhood of $2 million. To many people, that might sound like crazy money: a million bucks for a tear-down, two million for a house the buyer might want to remodel again. This is in a region where the median home price is only $351,000. But that's Silicon Valley, where there's no shortage of buyers, says Simons.

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

LARRY ROSENTHAL: Just because there are hard times doesn't mean that all places share in the struggle equally.

GONZALES: Larry Rosenthal is a housing expert from U.C. Berkeley. He says even without the current tech boom, some communities - like Palo Alto, or say Cambridge, Massachusetts - aren't as susceptible to shocks in the economy because of their proximity to nearby universities.

ROSENTHAL: These localities, because of their own assets - assets that are well-insulated from the ups and downs of the economy - are likely to maintain their property value and maintain their positive outlook on life.

GONZALES: Just ask James Witt.

WITT: This is a house I used to walk by when I was a boy.

GONZALES: We're standing next to an empty lot, except for the frame of a foundation for a new five-bedroom home like the one next door Witt 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. He doesn't take his success for granted, either. After all, he's weathered four recessions, long enough to worry about another one.

WITT: When I say it's a bubble, I say that because it could change tomorrow.

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

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

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

Richard Gonzales, NPR News.

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