The Facebook IPO and Silicon Valley Real Estate

February 9, 2012

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by Mike Simonsen

1 comment

If you're new to Altos Research, check out our main web site to learn about how we do our real estate market data and how you can benefit from it.

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.

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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.

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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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  • Another Bullish Sign for Housing Prices in 2012: Increasing Rents

    February 1, 2012

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    by Mike Simonsen

    3 comments

    Last week I highlighted the bullish signal that the price of newly listed homes after the first of the year were ticking up. This week I have another hint of good news. Rents.

    In addition to the active housing market, Altos Research now tracks the active rental market. Our set of 750,000 – 1 million rental units a month is the largest set available anywhere. And it’s powerful.

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    US Rental Prices, weekly sample, single family homes and apartments for rent. Sample size is approximately 600,000 per week.

    This chart illustrates rents across our Altos 20-City Composite and 10-City Composite as of January 27, 2012 so it’s a national view. This data is a blend of both single family homes and apartments on the market.  The weekly upticks in rents is one of the signs we’re using to underpin our mildly bullish home price scenario for 2012. The argument goes like this:

    1. Rents are rising because mortgages are harder to get and because the conventional wisdom that “owning always wins” is diminishing.  Percent of American households who own their homes has fallen to 65%. It’ll likely keep falling to closer to 60% over the next few years. This bodes well for rents.
    2. As rents rise, home prices fall, and mortgage money remains unnaturally cheap, we’ve reached the point where investors see growing returns on investment properties. There’s a well-funded investor pool who can take advantage. They’re buying.
    3. As rents rise, those non-investor home buyers see more opportunity buying vs. renting. As long as they can get a mortgage, there are relative opportunities.

    So rising rents help provide a floor to home prices. Keep an eye on this space for more as Q1 2012 progress.

     

     

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  • Here’s a Bullish Sign for the 2012 Housing Market

    January 17, 2012

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    by Mike Simonsen

    2 comments

    We track hundreds of local housing market stats here, but one of my favorite (because you can’t find it anywhere else, and because it’s so insightful) is the Median Price of Newly Listed Properties.

    It turns out that if you watch the prices of the properties that enter the market each week, you can get a real sense for the quality of the demand in a local market.

    Also notable is that the spring housing market starts the second week of January. Like clockwork.

    Realtors, it turns out, in aggregate are quite sensitive to where homes should be priced. They tend to price homes very close to where they’ll sell. When they’re sensing healthy demand, they price more aggressively. When they sense weakness, they’ll price lower so the property will move. They’re pretty clever, those Realtors. Here’s what they’re telling us today:

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    Median price of new listings. Single Family Properties across 20 major US metro markets. Source: Altos Research

    The data-point we’re looking at is at the far right side of the red line, that’s the weekly number, for January 13, 2012. Notice every 2nd week of January we get an uptick. This year is a nice strong move above the recent trendline (that’s the green). This move, while admittedly only one data point, is the very first signal of the new year.

    It’s not aggressively bullish, mind you. But it implies US home price stability through the first quarter. And that’s encouraging.

    Stay tuned.

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  • October home prices are so passe… Inventory & Days-on-market are the real story for 2012

    December 27, 2011

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    by Scott Sambucci

    17 comments

    Yes, home prices are down… Back in October…

    …but getting less bad because inventory is down and still declining. The foreclosure pipeline is clogged in Florida, while New York and New Jersey still have their robo-signing hangovers:

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    Year-over-year Ask Prices & Active Market Inventory: Altos 20-City Composite, weekly averages

    The constrained supply is also keeping days-on-market in check – sellers are still able to unload their for-sale properties in a tolerable period of time:

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    Days-on-Market: Altos 20 City Composite, 90-day rolling average

    Still don’t inventory or days-on-market matter?

    Take the extreme case – what if there were only 100 homes for sale in the entire country?  Then prices would be higher regardless of how many houses are in foreclosure or how poorly consumer expectations remained.

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  • What the resale market tells you about new home construction

    December 20, 2011

    If you want to know if new home starts are going higher, watch the active market listings. Residential housing reported higher numbers for November today. What do homebuilders know about housing that surprised the stock market today? Home prices are getting less bad: How? Inventory is down.  While the foreclosures are clogged somewhere in the [...]

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    FHFA REO Asset Disposition & Rental Strategy

    December 14, 2011

    In August 2011, the United States Federal Housing Finance Agency offered its “Request for Information” (RFI) for REO Asset Disposition including a transition to a rental-based solution, soliciting ideas from the private sector, academia, and research groups on the handling of the existing REO inventory.  From the August release: The Federal Housing Finance Agency (FHFA), [...]

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    Announcing Rental Intel: Real-time Analytics on the Homes and Apartment Rental Market

    December 6, 2011

    You want to understand the housing market. You’ve always tracked what sold, if you hang with Altos, you know what’s for sale and all that implies. What’s missing from this picture? Forty percent of this country doesn’t own the home they live in. So tell me, What’s for rent? Today Altos Research is announcing the [...]

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    “Housing Affordability” only means “cheap houses” (or how Ocala, FL is like the RIM Playbook)

    December 3, 2011

    Affordability measures price, but Capita per Inventory measures housing demand relative to supply, and isn’t that the point? RIM’s Playbook tablet, originally priced at $499 is now selling for $200. Very affordable compared to Apple’s iPad at $499-800+.  But which tablet do you want for Christmas? And that’s the point – affordability doesn’t mean “good” [...]

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