Monday, May 21, 2012

Facebook Comes to Market with Record-Breaking IPO:

Facebook Comes to Market with Record-Breaking IPO:
The Bay Area Housing Market continues its own record-breaking lack of inventory trend.

The much-anticipated Facebook initial public offering took place on Friday morning, raising as much as $18.4 billion – the biggest Internet IPO in U.S. history and the third largest IPO of any kind.  The $38 per share IPO opened their premier NASDAQ day of trading at $42.05, valuing the company at more than $100 billion. It jumped up to $45 on early trading, eased back to about $41, and as more steam escaped, closed the first day of trading just a mere 0.61% above the IPO opening value, at $38.23. 

Analysts are saying that a few factors contributed to the lackluster close not being near the conservatively anticipated 10% to 20% gain on opening day (some had predicted as great as 50% - recall that LinkedIn doubled on their opening day of trading).  Among the factors causing a disappointing close – the move by investment bankers to increase the offering price to $38 a share, and to expand the size of the offering by 25%, just a day before the IPO.  It also did not help that General Motors had stated just days earlier that it plans to stop advertising with Facebook Inc. after deciding that paid ads on the site have little impact on consumers' car purchases, according to a GM official.  And what about the reported NASDAQ glitches in Friday’s trading?  It’s said that system failures wreaked some havoc on the debut day for Facebook.

Facebook stories are headlines in many publications this weekend, ranging from Zuckerberg changing his FB status to “Married”, to predictions that this coming week could see Facebook share values lower than the $38 IPO price. Global companies, similarly located in our backyard, LinkedIn and Zynga both saw declines on Friday after the meager FB debut.  That said, the month of May has not been kind to NASDAQ overall. 

SO- what does all this say about the "Facebook effect" on Bay Area real estate? It's hard not to believe that the IPO will ultimately have some ripple effect in nearby housing markets. We’re fairly certain we’ve been experiencing the FB effect in the weeks and months preceding the IPO.  Low inventory and multiple offers seemed to originate in Palo Alto and Menlo Park months earlier and quickly spread across the Bay Area.  Now that the IPO is official, there will be hundreds and hundreds of newly minted millionaires – and a handful of new billionaires – as a result.  It's not unreasonable to assume some or even many of them will take part of their newfound wealth and invest in a home. A number already have in anticipation of the newfound wealth.

While some of the FB folks may choose to buy in Menlo Park, Palo Alto, or other posh suburbs near the company's headquarters, it's likely many younger employees (is that redundant at Facebook?) will end up living in some of the hip San Francisco neighborhoods where they can enjoy the vibe and energy of City life.  We've heard from our offices and agents in both regions who are working with Facebook people.

In Menlo Park, our office manager says non-Facebook buyers are very anxious to snap up a home quickly because they're fearful of an upcoming "tsunami" of FB buyers inflating prices once employees are allowed to sell their shares later this year. Traditionally, companies have a so-called lock-up period of about six months. But Facebook said this week that it has altered the lock-up expirations on some of the shares, freeing up a higher number of shares three months from now.

Facebook is also having an effect on sellers. Many who were planning to list their homes are waiting in anticipation of higher prices later this year when FB millionaires are freed up to cash in their shares. One word of caution about this strategy: Waiting for three to six months or longer in anticipation of FB buyers driving prices higher is no less of a gamble than guessing what will happen to the company's stock three or six months from now.  Add to that the additional Sellers coming to market with the same strategy, and you’ve got more competition as a Seller.

Agents are counseling buyers about the market NOW versus what may or may not happen in the future. Right now, there is a tremendous shortage of homes for sale, especially on the Peninsula and in San Francisco. Sellers are routinely getting multiple offers – some as many as 10 or 15 – and their homes are often going for considerably more than the asking price.

There's no telling what the economy might be like in six months. There are certainly a lot of questions out there that could impact the housing market. The economy is improving, but very slowly. The job market is still struggling to gain real traction. The geo-political issues in Europe are seriously impacting the stock market right here at home. And the uncertainty of the presidential election in the fall and its impact on tax policy and other issues make the outlook even murkier.

So while Facebook undoubtedly will have an impact on our local real estate market, just when, where and how much remains to be seen. Stay tuned!

Below is a market-by-market report from our local offices:

North Bay – Northern Marin County's housing market is desperate for listings in all price ranges right now.  Buyers are snapping up properties, and virtually every home under $500K is receiving multiple offers.  An agent in our office received 10 offers on a non fixer-upper in Novato, and another received 7 offers for a home that she thought she had priced at market.  There is a great deal of pent-up demand out there right now.  The Northern Marin Previews high-end market is starting to heat up, due to the general lack of inventory that has spread to the upper end of properties.  After months of having about 20 properties over $1 million in Novato, there now are four active properties, ranging from $1.2 million to $1.355 million. Our Santa Rosa manager says all of his office's listings have had multiple offers in these last two weeks. In Sebastopol, one agent reported more than 100 visitors to an open house on Sunday. The home was in contract by Monday. If it is priced right, looks right and feels right, mark it sold, the local manager notes.

San Francisco – The feeding frenzy continues, our Lombard office manager reports. Offers on certain San Francisco homes are 30, 40 and even 50 percent over, with one home going 60% over asking. Pre-emptive offers and homes on the market for just one or two days are common. Agents are facing a huge inventory challenge. Our Sunset manager notes that single-family home inventory in San Francisco is about 50 percent less than the same time last year.  The overall price is about 10 percent higher than the same time last year in most areas of the city.  It's a very active buyer’s market, he said, but no inventory to sell.  San Francisco Market Street agents have risen to the challenge to identify potential Sellers at their Open Houses.  The agents are becoming successful in getting the facts to neighboring homeowners. Not every homeowner visiting local Open Homes is aware of the severe shortage of inventory.  Like the other City offices, multiple offers are the norm for SF Market Street.

SF Peninsula — The central Peninsula is finally getting some more inventory in the highly sought after $800,000 to $1.5 million price range, our Burlingame manager reports. There are multiple offers, well-prepared and ready buyers for most every listing with sales happening within 7-10 days of coming on the market. Many buyers with cash are coming out this spring, making multiple bids difficult for young and well-qualified buyers with conventional financing. Agents are surprised by homes selling for generous prices. Open homes still getting record numbers of visitors. There are currently 53 active and 17 pending listings in Hillsborough. Sales activity has picked up, but over $5 million is proving to be a tough price point. This softness is providing a wonderful opportunity for negotiation. We have finally seen some higher priced properties move in Woodside – all three in the $5 million dollar range.  One even had two offers.  All three were local buyers. The Palo Alto market is on a seven-day cycle.  Inventory rises and falls.  Sales price exceeding the list price by 30% or more on transactions with multiple offers.  A property priced at $849,000 has 22 disclosure packets out. Some good upper end sales in the Woodside-Portola Valley area - three sales in the $5 million range (Coldwell Banker had 4 of the 6 sides). Hopefully these will 'prime' the pump.  The buyers are out there but are very conservative with their money after Woodside prices got so incredibly frothy in year 2000.  Portola Valley is definitely seeing some good action.  More listings are popping up everywhere. Lack of inventory is still causing frustration with the buyers, our Redwood City manager says. Prices are being driven up because of multiple offers.

East Bay – Berkeley agents are writing offers 24/7, our local manager says.  Buyers are able, ready and finally willing to compete.  It may take two or three disappointments for the lesson to be learned, and some buyers back off at that point, but others do what it takes for a happy ending.  We still need more inventory, which is the sad song being played across the Bay Area. In the Danville and the I-680 corridor area, sales are definitely being held back by lack of inventory.  Just about every offer our Oakland-Piedmont office is involved in is being made in competition.  Sometimes there are 10 or more offers on properties, and even though buyers go $80,000 or more over asking, they do not get the house in some cases. There are still mostly multiple offers in the mix. Open houses were heavily attended the last couple of weekends. For the properties that do not have offer dates, offers are being dropped off during the open house or broker’s tour trying to get the inside track. Properties in all price points continue to go over asking, sometimes significantly.  The Lamorinda market continues to be hot. The majority of sales are multiple offers and many sales are over asking price.  Inventory is slowly but steadily increasing and open homes are heavily attended. Listing inventory is still very low, according to our Walnut Creek office, but there are quite a few buyers and agents selling all types of listings. New home sales have shown a noticeable increase as well.  Still seeing multiple offers on most, if not all, properties.

Silicon Valley – In Cupertino, lots of offers are being written – far more than we have transactions. Inventory continues to be paltry and buyers and their agents are frustrated. The local market is continuing to stay active with a lot of interest from the buyers, our Los Altos manager reports. Sales activity in the Los Gatos area is increasing, but the lack of inventory continues to be the dominating factor in this market. Sales activity seems to be gradually picking up in the San Jose area, our local offices report. The overall market in the Saratoga area is still very strong. Saratoga is performing at a much higher rate for sales than projected for this time period. In fact new sales for April were over 140% of the same time period for last year. New listings are not coming in at the same high rate, indicating that the overall market is tight for listings.

South County – Morgan Hill’s proximity to Silicon Valley allows local agents, buyers and sellers to participate in the real estate frenzy in that part of Santa Clara County.  A Morgan Hill agent listed a San Jose condo last week and received 20 offers—half of which were considerably over list price.  Another agent listed a home in the Evergreen area of San Jose, held it open the first weekend and had over 100 visitors.  He garnered seven offers and ultimately sold the property for $40,000 over asking price.   In Morgan Hill the story is very similar—though the buying pool is smaller, the same phenomenon is occurring—multiple offers on well-priced homes.  The local listing inventory remains very low.  Morgan Hill agents are working very hard to obtain listings.  They are working hard on educating the selling public as to why the time has never been better to list their homes.

Santa Cruz County ­– For the moment, the story remains unchanged in the Santa Cruz County area: Closed sales in the county up slightly and inventory levels remain low, although we are starting to see more homes coming on the market as we move closer into summer months. Multiple offers are being made on many (or most) properties under $600,000. Our local manager says some prices in some areas are edging up slightly. The perception is that the time to buy is now.   If all the stars are in alignment, the house is priced appropriately, and is in a desirable price range, the home generally sells right away. There is more activity in the over $ 1 million market.    There is a lot interest, activity, offers being made, and this includes homes over the $ 2 million mark also.   Prices are significantly down from the top of the market, and this segment has been affected the hardest.   One of our agents just listed a home overlooking Capitola, a one of a kind property, for just under $7 million.

Monterey County – Our Monterey Peninsula market continues to be quite active. There are lots of buyers looking to buy while the rates and prices are so good.  But like the areas north of the Monterey Peninsula, there is a shortage of inventory in the lower price ranges.  Consequently, most properties up to $500,000 and even some above are getting multiple offers, driving the prices up a bit.  Even so, the biggest challenge has been in the area of appraisals. It seems there are too many appraisers coming from out of the area, not knowledgeable of the properties they are using as comparables and being very conservative in their price assessment. 

That’s it for now. Have a great week!
Stella Rosh

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