The Facebook IPO and Silicon Valley Real Estate

February 9, 2012

by Mike Simonsen


Lots of headlines around the web today about what the Facebook IPO means to Silicon Valley real estate. They all get it wrong. The short answer is that the Facebook IPO will have essentially no impact on the Silicon Valley housing market. Why? Because the market is already hot and has weathered the housing crisis better than maybe anywhere else, driven by infinitesimal supply and *tons* of other successful wealth creating companies of the last 10 years.

Take for example, Apple. In 2006, Apple’s market cap was about $35B. Now it’s $450B. That’s 400% of the wealth created potentially to be added by Facebook. Here’s another: VMWare. Here’s a company, based in Palo Alto, that created $40B in equity wealth since 2008. Here’s how local home prices have acted since then.

Home prices in four central Silicon Valley towns. 2005-2012

No surprise, this is an expensive part of the world to live in. Guess what? Facebook doesn’t make it moreso. What’s more interesting than perpetually high prices, in my opinion, are perpetually low inventories.

Inventory of homes for sale in Palo Alto, Los Altos, Mountain View, and Menlo Park, California 2005-2012

There are just over 100 homes for sale in these four towns. That’s it. (Why this is true is a topic for another post). If there are 5000 people vying for 100 homes, adding another 1000 millionaires from Facebook, while awesome and wonderful, doesn’t add any marginal demand to the local housing market.

The bottom line is that Silicon Valley consistently creates big stock wealth (thank god) and it consistently has few homes for sale. Home prices have held up quite fine since the bubble burst. They will continue to do fine. But Facebook is not a significant outlier event for homes in this market.

For better or worse.

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