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More Millionaires in the Bay Area Means Higher Real Estate Prices

Posted on | June 15, 2011 | No Comments

I’ve become accustomed to checking wikinvest every morning.  I checked the balance and found that I was down $1927.22 not including my 401(k).  The stock market is down about 1.5% this morning across the board.  Every stock I own is down today.   So, I checked the business news on Bloomberg’s web site to find the cause.

It looks like the drop was caused by a negative report on Manufacturing.

But the second headline that caught my attention was:  “Home Prices Exploding in Silicon Valley Amid More Millionaires

A tech investor expects an explosion of newly minted millionaires due to companies beginning to trade publicly:

“You will probably see hundreds, if not thousands, of newly minted millionaires in the next two or three years,” said Steve Eskenazi, a tech investor in Hillsborough, north of Palo Alto, where the minimum lot size is a half acre (0.2 hectare). He sold his portion of an online advertising network to Sunnyvale-based Yahoo! Inc. in 2007.

This will drive up real estate prices up to 15 miles from the companies’ headquarters:

As more firms go public and workers cash in shares, real estate within 15 miles of the office will climb, said Rosen, who gave a presentation at Google Inc. (GOOG)’s Mountain View headquarters before the company’s 2004 IPO to educate employees on housing. Sales are usually concentrated in the “middle to upper end,” he said.

In Cupertino, about 12 miles from Palo Alto, a three- bedroom home listed for $908,000 got more than a dozen offers and sold for $950,000 on June 8, said Albert Kao, an agent at Giant Realty Inc. in the city. The prior owner, who bought the property in 2002, decided to sell after her children graduated from the public schools. She made a $290,000 profit before commissions, Kao said.

As insiders start to sell stock, real estate prices will be driven higher.  This has already started in the case of Facebook:

Facebook founder Mark Zuckerberg, 27, bought a house this year in Palo Alto, said Larry Yu, a company spokesman. He declined to disclose details. Zuckerberg paid $7 million for a 5,000-square-foot (465-square-meter), seven-bedroom home in a “leafy and affluent” neighborhood, the San Jose Mercury News reported May 5, without saying where it got the information.

The purchase was made before Facebook’s scheduled move to Menlo Park, just north of Palo Alto.

The same way Google’s IPO has already pushed up prices the new IPOs will cause the trend to continue.  The LinkedIn ipo is raising home prices in Mountain View and Facebook is expected to do the same in Palo Alto when they go public as early next year.  Zynga, which is headquartered in San Francisco, is preparing for their IPO.  Meanwhile, across the bay in Oakland, Pandora just started trading publicly today.  So the whole bay area seems to be blanketed with soon to be millionaires.

If there is any solace to be gained from this trend it is that they will only cause a spike in housing at the high-end of the market.  However, it is the Bay Area.  Is it even possible to buy a detached home if you aren’t already a millionaire?

Luckily, for me, the stock market rebounded a little toward the end of the trading day.  I finished the day down but only $1775.25.


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