You may have recently read the New York Times or watched the local news, proclaiming “The IPOs are coming, the IPOs are coming!” with dire predictions that home prices in San Francisco and then the East Bay could jump by 50% with thousands of newly minted millionaires ready to pay cash for San Francisco condos and luxury homes in suburban neighborhoods.

Before you think of delaying a home sale to tap into this tidal tech boom, let’s consider a few things. We asked Tracy Sichterman, Broker/Owner of Berkeley Hills Realty, who has experienced previous tech booms and busts in the East Bay housing market, to share five reasons why she does not foresee a tsunami of tech millionaires purchasing homes in the East Bay.

 

  1. The New York Times article is about new millionaires, not billionaires, and frankly we already have that.  Berkeley median home price is already $1,224,900.  In Berkeley 28% of the sales in 2018 were all cash.
  1. Tech companies have a notorious churn and burn culture.

This means that not everyone working for the company has been there long enough to amass a ton of stock options and the employees tend to be younger than the average home buyer (the average first time buyer in California is 45).

California Association of REALTORS Economist, Leslie Appleton Young predicts that by 2025 California will be a majority renter state. The rise in popularity of collaborative consumption (the sharing economy) particularly in tech means some millennial  millionaires may not value buying property. So, the same people making millions in stock creating the share economy with Uber, Lyft and AirBnB, may still rather rent.

  1. These new millionaires are not new jobs needing new housing. They already live here. Not all of them will want to move.  This may affect the luxury purchases, which is a bigger part of the NYT article and mentioned in the ABC newscast.  Folks may buy toys, take vacations and the like, but not necessarily want to buy a new home. They may want to remodel or add an addition to their current location.  Frankly, with our older housing stock, many homes will benefit from renovation.
  1. There is much incentive to use that wealth to expand and infill.  With new ADU laws in California and a current housing crisis that will want to improve building stats.  ADU development is a great way to spend some IPO money. Read the policy research about ADU development.
  1. We have been down this road before. Forbes mentions Facebook in 2012 having an affect on Silicon Valley.  But that’s Facebook and Silicon Valley. Silicon Valley is a tech based economy.  Here in the East Bay, we have a more diverse economic base with Cal Berkeley, Lawrence Berkeley National Laboratory, large medical facilities such as Kaiser and Sutter Alta Bates, as well as Pixar, Chevron, Bayer, BART, AC Transit and Southwest Airlines.  We are not economically dependent on tech alone.

The one thing it may change in our past predictions is the notion that the Bay Area will hit an affordability ceiling.  Not all incomes will rise with an influx of money to the area, but we don’t have enough housing to allow all employed individuals to purchase (which we have never had, which is why we have a rental market).  The area demand has long out-paced supply, and without an end to the money funneling in, prices may not be quick to level as hoped in the purely housing focused discussions.

IPO money won’t mean everything, but at the very least, it will stabilize home prices in the Bay Area should a recession be in store for the rest of the nation in 2020 or 2021.

As far as timing for these IPO’s and the effect on housing prices? It could be spread over 5-10 years in San Francisco according to the pundits releasing the dire prediction. So, holding out for cash buyers to sell your home? We can help you take advantage of an already busy housing market where sellers are continuing to receive list price.

If you are interested, our team at Berkeley Hills Realty can provide a CMA for you and discuss a sales strategy for your home.