Real Estate’s in the Tank? Not in the Land of IPOs

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Joe Munroe / Hulton Archive / Getty Images

Homes in Silicon Valley, Calif.

It’s been what my grandmother would call “a month of Sundays” (i.e., a long, long time) since we’ve heard of a local housing market that wasn’t in the doldrums. In fact, much of the country is now officially in the double-doldrums, according to the most recent S&P Case-Shiller National Home Price Index, which revealed that in the first quarter, national home prices hit a new recession low. Yes, even lower than they were at their previous 2009 trough. This spring, even real estate markets that had been relatively recession-proof at the beginning of the bust, like those in Minneapolis and Seattle, took dives late in the game, causing the New York Times to doomsay “another season of pain.”

While Seattle’s deep sub-prime penetration plays itself out in a down housing market, its tech-topia peer to the south, Silicon Valley, is exploding into a hyperlocal housing supernova, all because of three little letters: IPO.

Bloomberg reports that compared with a nationwide decline of home values of 3.6 percent in March, prices of Silicon Valley homes have spiked, driven by newly liquid employees of companies with recent IPOs like LinkedIn. In May of this year, when compared with the same time last year, median real estate values in these suburbs south of San Francisco, in the San Jose metro area, had increased anywhere from 3.1 percent in Mountain View (where LinkedIn’s headquarters is located), 4.7 percent in Saratoga, 12 percent in Cupertino, and all the way to 20 percent in Palo Alto, just a hop, skip and a jump from Facebook’s new Menlo Park digs.

(PHOTOS: Life Inside Facebook’s Headquarters)

It’s not just an increase in prices themselves that points to this trend. Open house traffic has tripled in as many weeks, listings are receiving multiple offers and homes are selling for as much as 20 percent over their asking prices, according to local agents and Daniel Siciliano, a Stanford Law dean who spoke to Bloomberg’s Dan Levy from his perspective as a Silicon Valley house hunter.

Of particular interest was the demographic shift in prospective homebuyers of the IPO-induced nature of this mini-real estate recovery. (To wit, Facebook founder Mark Zuckerberg recently bought his first home, a $7 million Palo Alto pad.) Siciliano noted that the average age of the buyers he sees at open houses has declined from the mid-50’s to the mid-30’s over the past few weeks. Tech investor Steve Eskenazi, who once sold part of his own company to Yahoo!, explained: “Most people in their 20s who find themselves millionaires feel it’s their inalienable right to buy real estate, and they’re typically not price sensitive.” Even Rosen agreed, summing the phenomenon up for Bloomberg: “You’ve got young people with real money, and it’s not surprising they want to have a house.”

Of course, every IPO won’t be as successful as LinkedIn’s, which saw the values of their shares double on the first day. Oakland-based Internet radio company Pandora’s shares were actually down 20 percent below their initial offering price just 2 days post-IPO. But even modest IPOs represent a massive liquidity event for early employees. And, in terms of the IPO effect on the real estate market, even the anticipation of future IPOs of companies like Groupon, Zynga and Facebook are likely to continue growing demand for Silicon Valley real estate (neither Groupon nor Zynga are based in the Valley, but they are hiring engineers there).

(MORE: Groupon’s “Sellout” CEO Files for $750 Million IPO)

It’s indisputable that IPO fever is behind this surge in Silicon Valley property prices, bucking the years-long real estate recession that is still in full effect nearly everywhere else to some degree. The question is whether the IPO-fueled uptick will be a short-term spike or can be counted on to keep Valley values uplifted for the foreseeable future. The experts seem to be bullish: “It’s just the beginning of the story and I suspect we’ll see an explosion in the next couple years,” University of California-Berkeley real estate economist Kenneth Rosen told Bloomberg. Eskenazi agreed, opining that the upcoming tech IPOs will generate “hundreds, if not thousands, of newly minted millionaires in the next two or three years.”

Even Scott seemed ready to borrow a phrase from my grandma when he emailed Levy after viewing another couple of million-dollar-plus properties he decided not to go after: “The market seems to be returning to the crazy days and the question is whether or not it is a false recovery or a sustained recovery. I suspect that it is a sustained recovery, given the planned liquidity events with social-networking companies.” It’ll be very interesting to see whether Silicon Valley homeowners will have their high-tech corporate neighbors to thank for a month of highly lucrative Sundays.

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