Area Housing Will Be Greatly Impacted By Facebook IPO

Home prices may surge 10% as bidding wars are happening in some of the trendier areas of the city.

The Bay Area real estate market might be in a mini housing bubble that’s being fueled by Facebook’s IPO.

This week the social media giant is expected to open its doors to the general public. Overnight, Facebook will become a publicly traded company and a plethora of 20-somethings will see their personal wealth skyrocket.

In April, Facebook estimated its value at $77 billion, but since then the Palo Alto-based company’s worth has been assumed to be somewhere in the $100 billion range. This influx of cash will have a number of impacts, one of which could be the increase in property value.

Using a conservative analysis, Movoto--a  real estate brokerage in the San Mateo--estimated that Facebook’s coming out party could increase property value in trendy Bay Area neighborhoods and cities by $1 to 2 billion.

“Competition to buy listed homes in desirable Bay Area zip codes is already discouraging for the average home buyer.” said Mark Brandemuehl, VP Marketing & Business Development at Movoto. “The Facebook IPO will only add to the millionaires competing to buy a small number of homes, and it seems inevitable that prices will be driven up.”

To make this analysis Movoto spoke with Carole Rodoni, president of Bamboo Consulting a Bay Area real estate agent. Rodoni expected overall property value to rise.

She estimated that property value in fashionable areas will increase anywhere from 5 to 10 percent. This is on top of the area’s typical appreciation. She expected this mini housing bubble to last between a year and 18 months.

Those trendy areas are:

Rodoni called these new renters and homebuyers “shuttle babies” because they prefer to move back and forth between areas. It also means these shuttle babies are looking to move to areas where “you can walk, and within four blocks, you get your whole life.”

How the Math Works

To figure out how Rodoni’s estimate would translate into a dollar amount, the Movoto team divided the trendy Bay Area locations into two parts, cities such as Hillsborough and neighborhoods in San Francisco.

For the cities, Movoto used Census data to calculate the number of owner-occupied households in the area. After learning this figure, we used housing data to calculate the 75th percentile of current home list prices–or, the most valuable homes on the market, which the wealthy are more likely to purchase. We then applied the estimated 5 to 10 percent price increase to homes priced at the 75th percentile and above.

Movoto used a similar process for the San Francisco neighborhoods.

A Second Opinion

But like most things, there’s a difference in opinion.

Kathy Krize, a real estate agent in the Menlo Park area, called the local housing market “quirky” and suggested there was a small housing bubble in high-end areas. Nonetheless, Krize was hesitant to attribute the increase in home prices in the Bay Area to Facebook.

“I think all this media hype going on isn’t necessarily true; it may have an impact, but not the impact everyone is talking about,” she said.

She did note that some potential homebuyers believe they need to purchase a home before the newly minted rich do so, and at the same time there are buyers who want to wait to put their homes on the market in the hopes of gaining value.

“The fact is, a lot of them already have the ability to purchase,” she said about Facebook employees. “I think the impact would have been seen already. I’m not seeing a lot of people from Facebook coming into the open houses.”

From her experiences, Krize said there she’s seen an increase in the number of cash offers and noted homes are regularly selling above the asking price. She noted that buyers using more traditional financing are losing out to cash offers.

“It’s a quirky market,” Krize added. “It’s not to say that every home on the market is getting picked up. What I’m saying is that there are a lot of buyers who want to have prime property and there isn’t a lot of prime property on the market.”

Krize offered this example to explain the market trend: She recently listed a two-bedroom, one-bath home in a marginal neighborhood—what she called a great starter house—for $368,000. After five offers the house sold for $420,000.

“There is something going on with the market,” Krize said. “We are seeing it across the board.”

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Lou Covey, The Local Motive May 19, 2012 at 06:16 PM
The biggest impact of the IPO and the expansion of Facebook will be on affordable housing. The "trendy" cities of Atherton, Menlo Park, Palo Alto and Woodside have historically refused to provide affordable housing inside their borders unless they get sued (like Menlo Park recently). They will still drag their feet forcing more of the burden onto East Palo Alto and Redwood City (the latter provides 25 percent of the affordable housing in San Mateo County). At the same time, whenever Redwood City tries to create a solution, those communities do all they can to stand in the way of adding to the affordable stock. As FB expands, the problems will get worse, as will traffic for those employees that can't find adequate housing in the mid-Peninsula.
Andrew Boone May 25, 2012 at 05:59 PM
The Facebook IPO causing local housing prices to go up is pure hype. Very few Facebook employees will earn any money at all from the IPO - most are salaried workers just like the rest of us and don't own any share of the company at all. Those who do (like Mark Zuckerburg) are already rich and have already bought their homes. And not everyone who does get rich from the IPO wants to buy a house anyway. Many workers, especially younger workers, prefer the flexibility offered by renting an apartment.


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