Posted by: Donald Diltz | February 4, 2012

We All Like (Love, Actually) Facebook

Facebook’s IPO will not be a butterfly effect unless you figure it will be a Gulliver sized butterfly in our Lilliput sized SF Bay area.  Valuing the company at $100 Billion, the $5 Billion IPO will 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. 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.

Young Facebook employees who aren’t ready for suburban life, and who have braved the commute courtesy of FaceBook shuttles with wireless and coffee service will likely choose to buy in 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.

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. Our Menlo Park managing broker Wendy 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.

While much of the job growth has taken place in Silicon Valley, San Francisco is becoming known as the Internet Capital of the World, and 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 Coldwell Banker local offices:

San Francisco From my vantage in our SF Lakeside office, we had  two examples of Multiple Offers: 12 Offers – went more than 10% over; 22 offers – went more than 10% over.  And there are still record low inventories.  Interest rates remain low but financing guidelines are still tightening.  All these factors and more lead to a market that is healthy and quick to respond but unforgiving of overpricing or under-preparing.  This is a market where the professionalism of our agents really pays off for their clients – both buyers and sellers.  Our SF Market Street office notes that much of the previously unsold inventory is now spoken for; buyers are taking advantage of property that has been on the market for quite a while and going in and making deals for themselves.    An interesting anecdote: one agent had a deal fall out of escrow after accepting an offer less than asking price in December.  He encouraged the sellers to hold off on remarketing the property until after the new year and to spend a nominal amount to spruce up and stage the home.   Fast forward about 5 weeks and the property is now ratified again, in 11 days, at a contract price of 22% higher than the old offer. Our Sunset office manager says open houses are very well attended. One Outer Sunset home had 120 groups during a 2-hour period.

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.

SF Peninsula — Burlingame agents are still waiting for the inventory to build. They’ve had fabulous open homes with big buyer turnouts. Most buyers are motivated to purchase now and have done their homework in being pre-approved. The upper end of the market has had a slow start but more great properties are in the pipeline. Showings have increased in the $2-3 mill. range. As noted in the article above, the Menlo Park local market is really tight.  There are too many buyers and not enough sellers – way of whack right now. Our Redwood City manager reports many buyers attending open houses while inventory remains low. When a well-presented property in a good location comes on the market it sells very quickly, often with multiple offers. It has been a heavy listing month for our San Mateo office as more homes coming on the market in the new year. Most of the sales in the Sebastopol area are entry level. Like other areas, agents there have more buyers than homes to sell.

East Bay – Low inventory and multiple offers are common in the Tri-Valley area.  Closed sales in Livermore have been about even with last year for January, while closed sales were down from 45 to 27 in Pleasanton and down from 41 to 32 in Dublin. Dublin has been hardest hit city in the Tri-Valley area in regards to distressed sales. According to our Orinda manager, agents report they have buyers that are ready to purchase but feel the market may drop prices even further. Local inventory remains low. A few more properties are coming on to the market, our Walnut Creek manager says. Agents are seeing well-attended open houses with visitors who are finally ready to buy.  Multiple offers are being made on many listings. In some corners of the market agents are actually seeing prices slightly increasing.  There is a happy buzz in the air.

Silicon Valley – Our Cupertino office saw 21 offers on a modest home in the Lynbrook area, which was bid up by well over $100K. There suddenly has been a number of sales between $1.5M – $2M. Things are definitely heating up and buyers abound. Like other parts of Silicon Valley, the Los Altos market is regaining momentum but is still very, very low on good available inventory. There has also been increased activity for homes above $3 million. On the heels of a record setting sale in Los Gatos for $12 million in November, our local office just closed a buy side transaction in Los Gatos for $11.5.  These are some good early indicators that the high end is picking up steam. For purchases in the below $500K range in the San Jose Almaden market, buyers and their agents are having to write numerous offers and are often getting beat out by all cash buyers.  One agent wrote four offers over the weekend to have only one of them get accepted.  Buyers are clamoring for inventory, which in this region is the lowest it has been since ’04.  Prices are rising in this range with each seller coming out just a little higher than the last. Our San Jose Main office says the local market continues to be extremely active due to low inventory, low interest rates and an overall rise in consumer confidence. Open houses have been very busy over the past two weekends in all price ranges. And in Willow Glen, there has been an increase in listings and sales since the new year.  Our local manager is hearing of more multiple offers of five or more. The Saratoga market is tracking almost identical to last year as far as the number of sales, listings and closings. The exception is that we started the year with inventory much lower than the beginning level from last year. It will be interesting as we see what happens to the market after the Super Bowl.

South County – The South County is on fire, our Gilroy manager says. Agents are seeing a lot of activity – both sales and open houses. Open houses are well attended.  Multiple offers are prevalent on nearly every sale that is turned in. While we are not seeing crazy over-bidding, we are certainly seeing a lot of cash buyers and competition on terms. New REO listings are slowing considerably and we are seeing a great deal of regular sales. 42% of the active listings in Gilroy are distressed – either short or REO, 39% in Hollister, and 36% in Morgan Hill. According to our Morgan Hill manager, the South County continues to be a good alternative to those buyers who are looking for a better value—especially for upper-end homes.  Estate-like properties on acreage with generous square footage prove to be much more affordable than similar homes in other Santa Clara County cities.  During the past several months our Morgan Hill office has sold four homes—all priced in excess of $1.5 million.  There seems to be significant demand for these types of properties, especially for buyers who find other communities too expensive.  On the other side of the spectrum, entry level and moderately priced homes that show well are garnering multiple offers.  With very low listing inventory agents are encouraging potential sellers that the time has never been better to list their homes.

Santa Cruz County – In Santa Cruz, the story is beautiful weather, high buyer demand and low, low inventory. If buyers are waiting for the “bottom” and have not purchased a home, they may have missed the mark by inches.  The 3rd quarter of 2011 was the beginning of this trend, and Oct., Nov., and Dec. represented a 23% increase in closed sales in Santa Cruz County over 2010.  In addition, with such low inventory, under 600 single-family homes currently on the market, this is driving buyers into frenzy in some instances and multiple offers.  Interest rates are still at an all-time low as we enter into an election year. Buyers are out in full force at open houses. We have been receiving floor calls and many buyers are contacting their agents to find their dream property.  Sellers also can benefit from this window of opportunity with less competition; homes that were not selling last year are selling now.  Perception is reality and with only about three months of inventory, demand is far exceeding what current supply is.  Right now in Santa Cruz we have the ideal conditions for buyers and sellers.

Monterey Peninsula – The Monterey Peninsula’s sales activity seems to continue at a steady beat. However, the decreasing inventory has caused many multiple offer situations of late.  Inventory in the less-expensive areas—Seaside, Marina – of the Monterey Peninsula is down especially, what with fewer and fewer REOs coming on the market this past six months.  Carmel is the hot spot in the luxury marketplace.  Looking at the sales figures for 2011, it appears that Carmel may have bottomed out about a year ago and is now on the upswing, fueled primarily perhaps by the affluent Silicon Valley second-home buyers we have been selling to this past year.  Agents are looking forward to the annual AT&T Pro-Am next week and record crowds are predicted due to the expectation of Tiger Woods’ appearance.  Though agents don’t necessarily sell more homes during this time, they do sometimes make contact with golf fans that are interested in purchasing at a later time.


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