More talk about Facebook than football at a recent Super Bowl party indicates the upcoming Facebook IPO has the potential for far-reaching impact on Silicon Valley’s housing market.
But can a Facebook IPO alone get the Valley’s market back on track?
(See more: “Facebook Factor” stories)
The Silicon Valley housing market remains a very mixed bag, but taken as a whole continues to outperform the national market by leaps and bounds.
Nationally, economic indicators continue to show better days to come. Consumer confidence and consumer spending have shown decent improvement, and unemployment figures – measured by both the unemployment rate and the number of jobless – look better now than they have in three years.
That’s good news, but the overall national housing market is still foundering, with values and outlooks continuing to erode in most major U.S. markets.
In stark contrast, core Silicon Valley markets are performing quite well.
Sales figures are actually down in most markets, but this is largely due to a lack of quality inventory for sale, not a lack of buyer demand. This inventory shortage is most pronounced in the priciest markets such as Woodside, Atherton, Portola Valley, Menlo Park and Palo Alto on the San Francisco Bay Area Peninsula, and to a far lesser degree, the Saratoga market in the South Bay.
In the Peninsula markets especially, escalating demand kept inventory numbers down throughout 2011, leading to increased competition for what little inventory was available, and the re-emergence of a phenomenon that has been missing in action for years – upward property value pressure.
Supply, demand
This wide disparity between supply and demand remains almost exclusively focused on the Peninsula markets.
Core South Bay markets have remained stable, but have not yet experienced the spillover of demand normally seen as competition forces upper-end Peninsula buyers to expand their search in areas to the south.
Many buyers have been patient enough to wait for the right opportunity in their preferred location, while others have headed in other directions (most notably across the Dumbarton Bridge to the East Bay, and north into the hip, urban markets of San Francisco).
As a result, the South Bay upper-end markets remain fallow in comparison, and the out-lying markets on the East Side and South County are still dominated by lower-end distress sales.
Positive indicators for continued resurgence in our local market abound.
The rental market, long a leading indicator of the local resale market, is also experiencing surging demand and an overall lack of inventory to satisfy that demand.
Recent reports show the San Jose metro-area (which includes all of Silicon Valley) as the best location in the nation to find a job, but the toughest place to find rental housing.
Facebook, economic, market factors
The “Facebook Factor” (and to a lesser degree other potential 2012 IPOs, such as Yelp) will further chew through the anemic supply of Peninsula inventory, which will almost certainly drive increased demand in spillover markets. Whether significant spillover will flow south obviously remains to be seen.
Of course, there are still economic headwinds on the horizon that could slow the economy and the housing recovery.
The European debt situation, the ongoing gridlock in Washington, and the still-high (albeit improved) unemployment rate are all potential hindrances.
Also, foreclosure filings could increase dramatically in 2012 as banks work through the backlogs created by artificially low 2011 filings (due to the robo-signing scandal forcing banks to hold off on property seizures).
More than ever, foreclosure filings are now including upper-end properties, so bank-sales could inflate inventory levels across the board.
Stay tuned, feel free to contact me with questions, to further discuss market trends, or for any real estate data you may need.
