Will The Sili-ness Spread North?

Yes, the funny money is out in force on the Peninsula right now. Over the last three months as we’ve been looking, we have seen most decent SFR’s in Palo Alto and Menlo Park go into contract within 7 days of listing, many above asking. In general, it seems that unless the home has some fundamental issue (close to Caltrain, El Camino, way overpriced, etc.), it’s being snapped up quickly. The agents down there are giddy. Unfortunately, as long as the IPO window is open and the funny money gravy train continues, this probably won’t change.

I thought these IPOs were only making like 10 people rich? This can’t move the needle so why is Bloomberg writing an article?! /snark. The truth is that this sudden wealth creation demonstrates the real psychological premium individuals are willing to pay for home ownership. You’re playing with house money and new found wealth. Lot’s of it and spread fairly broadly. The home ownership premium is real and it is what keeps prices in desirable / supply constrained places traditionally higher than less desirable alternatives. Of course there are lots of factors but people want to own a home and if they have money to burn they will spend it. Of course, when the bubble blows that premium goes with it. But these bubbles seems to be shorter and shorter in cycles and its making the 1996 prediction in the top markets a hard case.

If you’ve seen all the Facebook commuter buses, etc, you know it will.

I think I already said this, but my relatives just bought in Palo Alto based on Facebook shares. (they were previously at Google like so many Facebookers).
a few months ago I said I though there was probably no .com bubble part two… however I may have to revise that with the ridiculous valuations that LinkedIn and now Pandora got, with Facebook and Twitter up soon.
all that said: this will not be a repeat of the 90’s IMO. this tech over-valuation is heading into a weak economy instead of heading into a boom as the .com bubble was back in the late 90’s.
I thought these IPOs were only making like 10 people rich?
although I disagree strongly with the number 10, I will say that there are less newly minted millionaires from these companies than many people think. (however, RE valuations are set at the margins, and thus a small number of new millionaires can really move a local RE market).
A LOT of the shares go to just a few people in each company (CEO, COO, CIO, founder, etc). the worker bees get good amounts of shares, but not necessarily oodles. Plus, there is a lockout before they can sell their shares.
we saw this with Google, where many Gooleaires fell back down to Google thousandaires as GOOG stock struggled. The early entrants made out hugely… the later entrants did well but not “rich”. current Googlers are paid well but not lavishly, except for the upper levels.
this will be the big hurdle for the social media millionaires. Can Pandora, LinkedIn, Facebook, Twitter, SalesForce keep high stock valuations long enough for their workers to cash in?
can they do so in the face of possible repeat recession?
it’ll be interesting to watch.

With respect to the broader market, last month Santa Clara County, of which Palo Alto is part, recorded a 23.6% drop in sales volume (a loss of 510 transactions) and a 5.1% decline in median sales price.

“…last month Santa Clara County, of which Palo Alto is part, recorded a 23.6% drop in sales volume…”
Could that have also been caused by pushing April 2010 closes into May?

Could that have also been caused by pushing April 2010 closes into May?
With respect to sales volume, of course. With respect to the median (which is the basis of the Bloomberg story), not so much.

Hopefully the influx of cash will help stablize the bay area economy and begin to add much needed construction and retail jobs.
However, I have to say the linkedin valuation just seems ridiculous (most people I know don’t even consider it social media), Pandora has a revenue stream but is far from profitable (and no one from Pandora seems to have a plan on how to make a profit either), Facebook and Twitter seem to be the only companies that look like they might be worth it until you think about Friendster and MySpace.
Of course the IPO’s will make a small number of people amazingly wealthy and hopefully that will smooth out the growing ‘double dip’ locally.

the parts that matter for this discussion are palo alto, los altos and, to a lesser extent, mountain view, cupertino and sunnyvale. some folks also choose to commute from los gatos and saratoga. broadening to san mateo county, the revelant parts are menlo park
See http://www.julianalee.com/reinfo/monthly.shtml for raw data for Palo Alto, Los Altos, Los Altos Hills, Mountain View, Cupertino, Sunnyvale, Santa Clara, and Menlo Park.
I see that Palo Alto has a decent number over asking and sometimes for a large amount over asking, and Cupertino seems to have a few as well, although not nearly to the extent of Palo Alto. The rest of the listed cities from Juliana seem to have the majority of houses either at or below asking, including Menlo Park, contrary to CSInvestor’s account.
Usually more of the selling prices show up as the month comes to an end, so we’re missing a bunch of data thus far. Juliana tends to have more accurate data than other places, because (a) she provides raw data, and (b) she goes by original listing date/price instead of last listing date/price. As a result, her DOM and listing price stats are much better than anywhere else.
I can confirm this silliness has spread to even the armpit of Silicon Valley (aka Milpitas, S. Fremont, Berryessa).
Based on the data so far for Sunnyvale and Santa Clara in the $550-$700K range, I’m not buying this anecdote. However, it’s worth noting that $550-700K is still well within super-conforming limits, which has an effect.
All three bids were well over asking and one was all cash.
As for all cash, those should be very short escrows right? 20 days or less? I see about 5 candidates in Palo Alto out of 52, 2 extremely short (4 and 7) in Menlo Park out of 54, and not that many anywhere else — 1 epic prime house with an 8-day escrow in Los Altos, and 2 in Cupertino.

“I’m not going to attribute this to IPO money, but mediocre homes are being snatched up at a ridiculous pace compared to last year. We’re searching in the $550-$700k range,”
Since the Bloomberg article itself points out employees are “locked up” for six months after the IPO, in addition to all the points listed above, I find the premise of the article about a correlation between IPO’s and these median changes unpersuasive. Especially considering when transactions would have needed to start in order to show up in May stats. Secondary market sales have been transpiring for some time as well, so drawing the line to May sales isn’t clear either.
However, the $550-$700k range, seems very much in line with what a two income tech couple (~$150-$200k HH income) could afford under traditional lending standards. At the low $550k end 3.5% down is only $20k, not too hard to scrape up. Even 20% down on $700k is $140k and I don’t think it’s unreasonable that either through options, ESPP or bonus there will be far more ten-thousandairs and fewer but a still significant number of one hundred-thousandaires.

Well, let’s just put it that way: whoever’s been in the valley over the last 10 years as an engineer working for a good company easily has 1 Million to burn on a down payment based on salary, options and benefits. There are only a few SFHs in the hot areas Palo Alto/Menlo Park/Los Altos/Woodside on the market below 2.5 Million. So you can do the math…

“Well, let’s just put it that way: whoever’s been in the valley over the last 10 years as an engineer working for a good company easily has 1 Million to burn on a down payment based on salary, options and benefits”
Given that high paying google’s current mid career average salary is $140k which gives a gross salary of $1.4M over 10 years and the poor performance of the Nasdaq and many tech stocks over the same period, your generalization is extremely unlikely to be true.
Especially considering that these jobs typically do not provide retirement benefits so that even a decent fraction of their savings would be excluded from the “money to burn” category.

“Google employees are the best-paid in the IT industry, according to a pay survey.
Workers at the search giant earn an average mid-career pay, for workers with 10 years’ experience, of $141,000, which is 23 percent higher than the IT industry’s market pay, the PayScale survey found. ”
http://www.pcworld.com/article/230169/google_leads_tech_salaries.html
Note that “whoever’s been in the valley over the last 10 years as an engineer ” is a far cry from highly paid director level with 20+ reports. But even for someone with a 2011 salary of $250k and 10 years of work, while its possible that they have $1M saved outside of retirement accounts, I don’t think it’s a given.

“I don’t think you know what you are talking about. Highly paid in the Valley starts at $250K per year. And all it takes is a director level in engineering with maybe 20+ people reporting to you. There are thousands of director level jobs in the Valley.”
I’ve worked at HP, Apple, Lockheed Martin, and Cisco as a mechanical & systems engineer through the boom, bust, boom, and bust again… Every engineering director I’ve worked under “directs” 100s of engineers. My direct manager usually managed in the 15-35 people, and I’m actually on 2 salary grades higher than him (technical vs management split). According to my org charts, this was true with all engineering and software divisions. BTW, my current engineering director oversees 380 people.
Maybe Google and Facebook are different, but I’m not sure you can say the entire valley is as you described.

“Highly paid in the Valley starts at $250K per year. And all it takes is a director level in engineering with maybe 20+ people reporting to you.”
1) When your original claim is about any engineer in the valley, this seems like changing the goalposts.
2) Many people at the level you’re talking about in 2001 likely already owned property and probably wouldn’t be a new buyer. Also, they don’t necessarily have $1M in investable assets — do the math, as you say.
3) Not all companies are as you describe. In addition, the manager types are not necessarily the same as engineers (as per your original claim), whether in skillset or paygrade.
In addition, not all people who have that much in assets (which again, isn’t that many) want to sink all their savings in housing, and many of them already have houses.

Well, guys, be that as it may. If you want to live in the nice areas of Palo Alto, Menlo Park, Los Altos, Woodside, Portola Valley, etc. and can’t afford more than 2 Million, there are not many homes to choose from. Check on MLS and I bet you’ll find fewer than 20 homes. And there are obviously enough people with salaries and/or assets that can buy those homes.

“If you want to live in the nice areas of Palo Alto, Menlo Park, Los Altos, Woodside, Portola Valley…”
I assume you mean “nicer” areas because there is hardly anything available in those towns that would be considered “not nice”.

“Nevertheless, let’s put aside the anecdotes for a minute and take a look at the numbers.”
I’ve looked at these markets, and I’ve given you (incomplete) raw data for May. DOM in Menlo Park is 92 days, DOM in Palo Alto is 50 days. Again, I’m using data with true DOM and true original list price to sale price ratio, not the rigged kind you typically get where re-lists are treated as original.
No one’s saying these markets aren’t doing okay — Palo Alto does seem to be exactly as hot as people make it out to be. The other cities appear to be far less frothy than the “all cash, over asking, sold in less than a week,” you tend to hear, per the data and experience. Even for Cupertino, which seems a little frothy, people tend to exaggerate a little bit on those factors. I once saw a claim of 10% over asking being typical in Cupertino, and there are very few houses in that range from what I’ve seen.
Btw, I’m not sure if Redfin is always the most accurate for aggregate statistics, and I’ve even heard of systematic data issues for their aggregate data. At minimum, tipster’s surveys of Redfin vs. fluj’s surveys of MLS (which don’t always match the editor’s/rereport’s for some reason) seem to be distinct.

The date you all care about is about six months after a Facebook IPO. The great unlock.
The current beneficiaries of secondary markets are comparatively few. You could argue that there are almost as many newly-minted UHNWs who made 83b elections and are quietly moving to Seattle, Las Vegas, or New Hampshire.
Many Pac Heights home sized fortunes in state tax will be saved when shares are sold outside California on January 2nd, 2012. These folks won’t be back until 2013.

Some gold rush. LNKD has lost about 45% of its peak first day value in a month, Pandora lost 50% in a few days.
The employee shares are locked up for 6 months. At the rate these two stocks are moving, the rank and file employees will be lucky to have enough option money for a decent car. They aren’t going to do jack for the SF housing market.
Oh, GOOG has dropped below $500 and is dropping like a rock.

The employee shares are locked up for 6 months.
Can they sell calls?

I see that Facebook just delayed its IPO for at least another year. They are already kind of “public” but looks like they won’t really be public until late 2012 or later.

You postpone your plans to file it . . .

“”First, let’s be clear: Facebook hasn’t actually “delayed” anything. It never registered for an IPO, let alone prepped a roadshow or a formal offering date.”
The Financial Time’s source could be wrong or spreading disinformation, but presuming they’re correct that Facebook was working towards a 2011 IPO and now is looking towards 2012 at the earliest. That is in fact a delay.
In the context of Groupon’s and Zynga’s delays this becomes more consequential.

“Consequential to what?”
First off, when three companies are delaying their IPO’s it’s more indicative of market conditions then individual factors. Groupon in particular has accounting issues so if they alone were delaying, a case could be made for that being an isolated event. The source in the FT article also claims that Facebook’s delay is not due to market conditions. Alone, this might fly. ( Although the stated rational “Mark Zuckerberg, Facebook’s chief executive, wants to wait until next September or later in order to keep employees focused on product developments rather than a pay-out.”, is pretty weak gruel)
Secondly, the FT article and your quoted section mention that according to the source, Zuckerberg explicitly calls out that the delay will result in delayed pay-outs to the employees. i.e. There will be a direct financial consequence for employees.

So every company that didn’t file their S1 today is just continually postponing it? The CEO / Board has one single job: Maximize Shareholder Value. I think it is a safe assumption that is what is happening here.

What game exactly? Other than maximizing shareholder value?