Silicon Valley housing market “likes” Facebook, other IPOs –
(and rest of the Bay will, too)!
Unless you were lost in a forest somewhere this week, you couldn’t have missed all the news coverage about Facebook’s much-anticipated announcement that it plans to launch an initial public offering this spring.
Financial gurus have been abuzz about the deal, which could value the company at an astronomical $100 billion and make millionaires – and even some billionaires – out of hundreds or even thousands of employees, venture capitalists and even one very lucky graffiti artist, who’s stock certificates for painting murals in the company headquarters years ago will be worth an estimated $200 million.
Facebook’s IPO could put a charge into the financial markets, especially the tech sector, much the way Google ignited a NASDAQ run after going public in 2004. Similarly, many real estate experts believe that the “Facebook Effect,” as it’s becoming known, could fuel strong growth in the local housing market – and not just Silicon Valley, but in nearby areas such as the East Bay and San Francisco.
The heart of the Peninsula – areas like Palo Alto and Menlo Park – are already experiencing tremendous shortages of homes on the market. There just aren’t enough listings to meet the strong demand from qualified buyers. It doesn’t take a rocket scientist (or Facebook engineer) to figure out what will happen to the law of supply and demand when you add hundreds or thousands more newly minted millionaires looking for homes.
Multiple offers are becoming the norm again in the heart of Silicon Valley, and homeowners are already getting unsolicited offers on a weekly basis. Many who are thinking of selling say they’re holding off until after the IPO in hopes of getting a higher price – a risky gamble of timing the market I believe. But nonetheless, as demand heats up in the Valley and many of those new millionaires have trouble finding a home or don’t want to pay the premium prices, it stands to reason that you may have a spillover effect of buyers looking elsewhere.
Our Menlo Park manager, Wendy McPherson, told the San Jose Business Journal that she believes the East Bay market could be one beneficiary of that Facebook spillover. Some of the areas like Fremont are just a stone’s throw away from Silicon Valley, or in this case a Dumbarton Bridge ride away. Fremont is already the home to many well-paid tech workers who drive into the Valley every morning. Commutes from some areas of the East Bay wouldn’t be much more than from many parts of Silicon Valley.
Young Facebook employees who aren’t ready for suburban life may also choose to head north to San Francisco, where they can enjoy all that the city has to offer. The hip, urban existence of clubs, restaurants, art galleries and the theater are very attractive selling points to well-healed 20-somethings. And Silicon Valley companies are known for providing shuttles for their San Francisco dwellers, either to the train station or even to the headquarters itself.
Of course, Facebook isn’t the only driver of growth in the Bay Area housing market. Certainly there have been other high-profile IPOs in recent years, including Groupon, Zynga, and Pandora. And McPherson has researched 18 other upcoming IPOs from companies that employ 15,000 workers. If even 20 percent of those decide to buy a first home or trade up, the impact on the market could be enormous, she notes.
While much of the job growth has taken place in Silicon Valley, the East Bay has quietly been the beneficiary of expansion in certain areas, most notably the San Ramon Valley along the Interstate 680/580 corridor. Lost in all the headlines of the tech world was the fact that General Electric plans to build a $1 billion innovation center in San Ramon’s Bishop Ranch development. Such expansions could result in hundreds of new jobs in that area alone.
Given the robust economic growth in the Bay Area, it’s hard not to be optimistic about the future of our housing market.
Below is a market-by-market report from our local offices:
North Bay – There is definitely a feeling of change in the air compared to the last several years, according to our Southern Marin manager. The biggest difference over the last few weeks is we are beginning to see multiple offers and full price offers on properties other than REOs and short sales. A property in San Anselmo listed at $899,000 got six offers, and a property in Mill Valley priced at $1,695,000 that didn’t sell last year got offers immediately after going back on this year fully staged. Not enough inventory continues to be the problem, according to our Greenbrae manager. Very few new listings are on the market, and while sales are starting to occur, it has been slower than anticipated. There is a lot of pent-up buyer demand as evidenced by the number of multiple offers. Attached are some market insights straight from the agents. The inventory in Northern Marin remains low as well with the same average we continue to see each week – around 100 properties, ranging in price from $134,000 to $2.5 million. Buyers are finally realizing that if they want a property, they have to move fairly aggressively on it. Across the board, we are seeing an average of 98% sales price to list price. REOs are priced to move very quickly, and along with short sales, are still making up a large part of our market in Northern Marin. In the wine country market many of the luxury sellers have adjusted their pricing lower in order to capture buyers who have been hovering for several buying seasons. This has created a good amount of movement in this category. While inventory is at drastically low levels across all categories, Sonoma County is a great value relative to the historic relation with Marin and San Francisco Counties, our Santa Rosa manager says. Obviously as the shortage of inventory persists, we expect prices to rise as we move through the year.
