According to most business publications including The New York Times, The Financial Times and Forbes Magazine, the pending wave of tech IPOs could make Bay Area home prices even more exorbitant than they already are.
Some of the biggest names in tech, Uber, Lyft, Slack, AirBnb, Pinterest and Postmates, live in the Bay Area and all are planning to launch IPOs this year. According to a data analyst at Compass, the effect of these IPOs could send home prices “into the stratosphere” as hundreds of newly minted millionaires choose to enter or move up into the Bay Area’s housing market.
This slew of IPOs is coming at a pivotal time in the local housing market. The ˆSilicon Valley Business Journal reported in early March that home sales in Santa Clara County experienced a “sharp downturn (that) accelerated a trend that developed over the previous eight months.”
Home sales in the Bay Area region, according to CoreLogic, were at the lowest levels in eleven years. And Jeff Tucker, an economist with Zillow, said that inventory in San Francisco was up y/y +43% and +25% in San Jose due to slumping sales.
Tucker projects that the Bay Area may see potentially thousands more buyers in the housing market in the six to nine months after the pending IPO frenzy since it takes that long for stocks to vest. “A big fraction of those (potential buyers) don’t yet own homes…it may be similar to the +20% increases in Menlo Park home prices when FaceBook went public.”
Alex Comsa, an agent with Coldwell Banker in Palo Alto, told the New York Times that these upcoming IPOs will result in a “massive injection of liquid cash in the Bay Area in 2019…a few of my clients are actually waiting for these IPOs to take place so they can either buy their first home or eventually upgrade their current residences.”
Comsa also believes “these tech IPOs may replace the infusion of Chinese capital we experienced over the last few years…” now that the Chinese government has installed stiff restrictions on moving capital offshore.
The Financial Samurai is the lone wolf in suggesting that the housing industry is overestimating the impact of tech IPOs on home prices and inventory in the Bay Area. According to this publication, the average tech startup employee has been working with the company for two years and that the average option stock price is much higher than option stock prices for “early beginnings” employees.
To become windfall millionaires, these current two-year employees would have to have at least $2M in options that would net them $1M-$1.5M IF they were to sell ALL of their stock.
The Financial Samurai estimates roughly 10,000 “eligible” buyers and between 2,000-5,000 “high intent” buyer from these pending IPOs. The publication also estimates a surge in supply…essentially a supply ratio of 76 sellers to one buyer if just 5% of owners (or 38,000-78,000 homes) decide to sell. Such a supply surge “…could result in a flooded market and pushed down prices.”