The stream of newly minted, IPO payouts from Lyft — and soon, other tech unicorns — may have Bay Area home sellers dreaming of bigger payouts and buyers wary of even heftier mortgages.
But Bay Area real estate veterans and economists say the IPOs’ impact on home prices may be more subtle than expected.
The influx of cash to a few thousand investors and employees at a handful of companies will offer more fuel for the already blazing Bay Area housing market, experts say. And it could fire up confidence for buyers of high-end homes.
But based on the Bay Area’s past experience with big IPOs, the new cash will be only one of many factors contributing to the market’s steady momentum, economists say. The shortage of new housing, expansion of established companies and the overall economy also weigh heavily on home prices.
“We just don’t know yet,” said Ralph McLaughlin, economist at real estate data firm CoreLogic. “But there’s more of an argument that there’s an upside impact.”
Lyft raised $2.3 billion last week, among the biggest tech IPOs in U.S. history and placing a $20 billion market value on the ride-hailing company. But Lyft’s debut could soon be dwarfed by other expected public offerings in coming months. Uber alone has a reported valuation of $120 billion, and Airbnb could be valued at more than $30 billion. Pinterest and Slack are also expected to go public.
With new housing development historically slow in the region, prices have increased for a record seven straight years. Economists say the IPO jackpot should push up prices even further in the most expensive Bay Area neighborhoods.
But that effect is likely to be muted — many of the financial gains from the IPOs are expected to land with investors and higher-salaried employees. This group generally has housing, and will not necessarily be competing to move up to pricier homes, economists say.
Employees also generally have to wait several months after an IPO before they can sell their shares, limiting the immediate impact on home sales.
The Bay Area has a long track record with big IPOs — Google in August, 2004; LinkedIn in May, 2011; Facebook in May, 2012; and Twitter in November, 2013. The big windfalls for employees caused little more than a ripple in home values around tech headquarters when compared to surrounding counties, according to an analysis by CoreLogic for this news organization.
The analysis showed that home values around these tech headquarters initially rose at roughly the same rate as the larger San Jose and San Francisco metro areas in the months following an IPO. Home values in neighborhoods around Google in Mountain View only rose above the rest of Santa Clara County two-and-a-half years after the company’s public market debut, according to the CoreLogic analysis.
The neighborhoods around LinkedIn in Sunnyvale appreciated more slowly than other Santa Clara County communities in the year following the company’s public offering. But in the second year, home values in Sunnyvale neighborhoods rose 22 percent, slightly better than the 20 percent gains in the region.
Since Facebook raised $16 billion in the largest tech IPO by a U.S. company in history, home prices around the company’s Menlo Park campus have largely mirrored the increases throughout the Peninsula, according to CoreLogic.
And home values in the San Francisco neighborhoods closest to Twitter actually lagged behind increases in the rest of the city, as more popular neighborhoods drew tech employees, the analysis showed.
McLaughlin said many factors drive housing prices, and the overall growth of the Silicon Valley economy has a strong influence. For example, Facebook’s IPO and rising home prices in the region in early 2012 coincided with an overall growth in the economy.
Bay Area home prices have been rising, year-over-over, every month since April 2012, according to CoreLogic data. But so far this year, sales of homes over $2 million have lagged far behind the rest of the market.
McLaughlin expects a bump in the middle and high-end markets among new homeowners and a few employees trading up to bigger homes or more convenient neighborhoods. “What we’re not doing is building homes,” he said. “Lower income households get squeezed out.”
Steve Levy, director of the Center for Continuing Study of the California Economy, said he expects bidding to become more intense for properties over $2 million.
Many agents say they don’t have to drum up a special marketing plan or add gimmicks to draw new tech millionaires to open houses. They’ve been selling to tech workers for decades and know which features to highlight.
Nina Dosanjh, an agent at San Francisco-based Vanguard Properties, said the market remains tight from lack of new homes and people willing to move. Starter homes still sell for $1.3 million, and she expects that to climb higher. But, she added, “it’s too early to tell.”
Michael Repka, CEO of DeLeon Realty in Palo Alto, said the next wave of IPOs will boost confidence for some high-salaried tech employees on the sidelines.
“It’s always a positive,” Repka said. Rising interest rates and stock market volatility over the last six months, he said, has brought “the onset of some nervousness and uncertainty.”
But real estate veterans say IPOs are only one part of the home-buying equation. Many expect first-time buyers to be more cautious.
Ramesh Rao of Coldwell Banker in Cupertino, said his tech clients have become more conservative. More two-income families have been willing to take on a mortgage they can pay with just one salary, he said. “They might splurge a little bit,” he said, but he believes many will seek to diversify their investments.
In the 2012 run-up to the Facebook public offering, home sellers in Menlo Park and Palo Alto near the company headquarters held high expectations, said Michael Dreyfus, veteran agent at Golden Gate Sotheby’s in downtown Palo Alto.
“Facebook was going to be the be all and end all. Dollars were going to fall from the sky,” Dreyfus said. “It didn’t happen.”
Eventually, employees bought heavily in Palo Alto neighborhoods near company headquarters, Dreyfus said. “It took time.”