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Is 'The Facebook Factor' Driving Up Real Estate Prices?

What’s with the real-estate related Facebook news? We are experiencing a shortage of homes for sale here on the Peninsula while sellers are holding back for now, waiting for Facebook to go public.

Google the term “The Facebook Factor” and you will find a large collection of books and articles on the subject.  They talk about the influence of social networking on everything from our love lives to Egypt's revolution.  For us in Silicon Valley, Facebook is a brick-and-mortar company located right next door in Menlo Park.  When I drive from Palo Alto to see my parents in Fremont, I make a left turn onto Dumbarton Bridge East at Hacker Way, the vanity address of Facebook’s new headquarters.

But what’s with all the real-estate related Facebook news?

It is no secret: we are currently experiencing a shortage of homes available for sale here on the Peninsula.  Market activity is limited only by the available supply of homes.  During the first three months of the last year, 164 homes were listed and 79 were sold in Palo Alto.  This year, only 126 homes were put on the market while the same 79 were sold.  With fewer homes coming to the market and sales remaining strong, Palo Alto single family home inventory dropped to only 30 units in March.  Compare this number with 60 homes at the same time last year.

Word on the street is that many sellers are holding listings back for now, waiting for Facebook to go public.  It is expected that the Facebook IPO will produce 500 to 1,000 new millionaires.  Some sellers are expecting that these newly-minted millionaires will drive up prices in the local markets, including Palo Alto, Menlo Park, Mountain View and Los Altos.  One Silicon Valley executive in Los Gatos is going as far as offering his 11.5-acre estate in exchange for pre-IPO Facebook shares (see the story at MercuryNews.com).

Buyers, on the flipside, are talking about beating the Facebook crowd and getting into available homes before being priced out of the area.

Meanwhile, home prices are already pushing up toward record highs.  In March 2012, the median price of a single family home in Palo Alto reached $1,633,000, a 64 percent increase from the last market bottom in March of 2009.  Multiple offers are expected for well-priced properties and off-market pocket listings are becoming a common occurrence.

If I would have to advise a client, I would recommend not to time the sale or purchase of a home to any company's IPO, but rather to focus on market fundamentals.  The Silicon Valley economy is doing much better than the state and the country overall, with the unemployment rate for Palo Alto residents at 4.7 percent in February.  Near-record low interest rates are further supporting the local recovery.  Sellers today have the chance to get top dollar for their Palo Alto properties while buyers are able to get into a highly desirable area and lock in their housing costs for the foreseeable future.

Michael Talis is co-owner of Talis Real Estate

This post is contributed by a community member. The views expressed in this blog are those of the author and do not necessarily reflect those of Patch Media Corporation. Everyone is welcome to submit a post to Patch. If you'd like to post a blog, go here to get started.

Phyllis McArthur March 31, 2012 at 11:06 PM
Michael, this is a really good piece, however, how do you explain that further up the peninsula? 10 offers on 1 single family home in San Mateo, 5 offers on a 2 bed condo in Foster City, I could go on. Do you think that the same trend is happening further north in my neck of the woods? Do you think that home sellers are playing the same "wait and see" on the north peninsula? It's chaotic!
Michael Talis April 01, 2012 at 03:37 AM
Thank you for your comment Phyllis! Facebook is a bellwether of the local economy, but it's not the only company in the Bay Area doing well and hiring. One of my friends working in the tech industry in San Carlos lost his job 3 weeks ago had 4 job offers by the end of this week. Homeowners up and down the Peninsula can afford to wait for a particular price level to materialize. And they're generally waiting for a price level that's 10% over whatever is today's market price... Most of the sales I see these days are non-discretionary sales. People who are able to wait are still waiting to see which way the economy will go long term and who will win the elections. There is not enough confidence in the marketplace for families to try to upgrade their homes without a pressing need. All this limits the number of homes coming to the market across the entire Peninsula.

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