patrick.net

As a Broker on The Peninsula, your comments are exactly what I've been saying. The IPO was a flop and the whole scenario was almost parallel to that of when Google went public in 2004. This recent market didn't just happen overnight, but the announcement of Facebook's IPO certainly help to fuel it. The market has behaved so similarly to the frenzy Google's IPO created in 2004. Back then, everyone thought they wouldn't be able to buy a home because of all the "instant millionaires." The craziness lasted for a while but soon identified itself for what it was--a bubble. This time around, we've seen (almost overnight) buyers back off a bit. The market is still very much a high, pent-up demand with little inventory, but instead of many homes receiving 30+ multiple offers, we're seeing much smaller number of offers. Not on EVERY home, but there certainly has been a change. It will be interesting to see what happens once the Facebook employees who have stock are able to actually exercise them. It's good to mention that a fairly big percentage of them live in San Francisco and will probably continue to do so.

Thank you for your post!
Dawn Thomas

Thanks for the response Dawn. I think the decision to buy in the higher end areas of the Bay Area is a tough one right now. On the positive side: (i) interest rates are at historic lows, (ii) equity and debt investments are not really attractive, so unless you want to sit on a pile of cash the money has to go somewhere, (iii) I expect inflation to be quite high over the next couple of decades, which makes taking on debt (somewhat) more attractive, since you can pay it back with tomorrow's devalued dollars. Also, the Bay Area is and will remain an attractive place for wealthy Asians to park some money which should help support prices.

On the down side: prices in these areas have not fallen the way they have in places like the East Bay (and the rest of the country, really), so no buying at a discount. Also, income to price ratios suggest we are still in a bubble in places like PA, Menlo, Atherton etc. Finally, in my mind there is a serious question as to whether prices will remain high in places where the primary reason they are high is access to tech jobs. If you work in tech in Palo Alto, and you must physically commute to your job, then it makes sense to live in a place like Menlo since the commute is so easy. But in the coming years, as it becomes easier and more acceptable to work from home, will that advantage be mitigated? If so, what effect will that have on prices in places where the primary upward price pressure is a result of physical proximity to tech jobs?

Nice comments and lets also not forget that
- many people who work for Facebook already own homes as many came from other successful startups like Google. Home ownership is 65% nationally.  If you go uber-conservative and say its only half that here (younger and transient crowd) then 32.5% already own homes.
- Even if those home owners trade up that means a house becomes available as they move out so it's not a stress on supply.
- Facebook knew what it had a long time ago and gave relatively small option packages to bulk of later employees who would give up their pinkie finger to work there so the windfalls may not be as broad as everyone thinks.
- the early employees who have a lot of options are probably not buying the same house most people on this list are looking for so they aren't "in the market" from our perspective.
- I know this is sacrilege to say but not everyone wants to own a house or even stay here and to build on the points above many may choose (especially the younger employees) to move up to the city which is cheaper and more interesting if you're single. Or even move somewhere else or spend their money on a Fisker (which means they'll never be in the real estate market because they'll never be able to reach an open house)

Prices on houses less than 1.25 million have increased 30 percent on average since January of this year. This is mainly Chinese money investing in the Palo Alto School District.

It is not IPO related however the IPO certainly had a huge psychological up, which now will translate into a psychological down. These houses are just not worth it when a similar one in Redwood City goes for 750 - 800 thousand.

You can put two kids through private school for the difference and get capital growth which is now unlikely in Palo Alto.

Tech is in a bubble 2.0. Job growth in things other than social start ups is actually falling in the valley.

The UC system is full and underfunded. California is in a funding crisis. Those Chinese kids will get to the UCs and find that they have to pay 20,000 per year - just like in other parts of the world. California was the educational deal of all time. No loner. Sadly.

So my guess is that prices will fall a little then pretty well stagnate for years.