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San Carlos Real Estate May 17, 2012

The Facebook Effect: Whatever It Is, It Starts Now.

by Chuck Gillooley

IPO Puts Hype to the Test.

Not since Google became a public company in 2004 has so much hype and speculation surrounded the initial public offering of a Silicon Valley high-tech company.  Nary a day goes by that you don’t hear someone discussing the “Facebook Effect”, or how the hypothetical influx of so much cash into the local economy will affect the Peninsula.  But after months of anticipation, another historical day will be entered into the annals of the global economy:  Facebook will also join the ranks of the world’s public companies when it goes public at $38/share.

This event, as has widely been documented,  will mint a few thousand paper-millionaires on their payroll, and will have a less dramatic but still positive effect on every business that’s even remotely connected to Facebook.   That much everyone agrees on.

But what this means for the local economy, and specifically the San Carlos real estate market, is something that nobody seems to truly understand nor concur.

Don’t Blame Them for 2012.

When we entered 2012, the real estate market (and the local economy) was enjoying the first sustained growth period that we had seen in nearly 4 years.   Most of us who look closely at the numbers every day had 2012 pegged as a year of linear growth, or basically a continuation of the positive growth quarters that marked the end of 2011.

Well, you know how things turned out — the market took off like a spooked horse, snapping home buyers back into what felt like 2005 all over again.   Multiple offers and escalating prices have been the norm since the beginning year, and that has been exacerbated by a critical shortage of housing inventory.

But as much as we’d like to, can we really blame the “Facebook Effect” for this inexplicable market behavior?  In a word, no.

Certainly, many home buyers view today’s IPO as an Armageddon of sorts — the day when busloads of stock-rich 20-somethings will invade White Oaks and buy up all of the homes for sale — all 3 of them — dropping suitcases of cash, and still having enough left over for a lifetime supply of Red Bull and Panda Express.

But the reality of the situation is that Facebook is not the main catalyst behind the wild ride that the real estate market is on right now.

“It’s the Economy, Stupid.”

Where’s Wild Bill Clinton when you need him?   The local tech economy has been quietly growing since about mid 2011.    You could almost feel the surge as more companies started hiring, and the freeways started to get jammed up again.  That boost in employment, coupled with insanely low interest rates, was enough to push many off the fence and into the home buying hunt (right alongside all of the new talent that was being moved into the area.)

But of all the buyers that have been doing battle since the beginning of the year in San Carlos, the number of them that are Facebook employees is statistically inconsequential.   That certainly isn’t the case in Palo Alto and Menlo Park, but it is here in the City of Good Living.  This highly unscientific opinion is gleaned from talking with the top agents in the area, and comparing my own experience in the market over the past year or so.   Frankly, I’m placing far more Google employees right now that I am Facebookers.    That may very well change in the coming months.

Something is Coming, But What?

A big chunk of the new millionaires still face vesting schedules and lockdown periods before they can truly smell the green ink on their newly minted fortune.   Assuming a 6-month lockdown on selling shares, that means the earliest that the paper money becomes BIG MONEY is the end of 2012.

But does that mean that they’re going to rush out and spend it right away?  Look what happened to the smart folks who sat on their Google and Apple stock for this long growth period.    Sure they’re buying houses now — in Tahoe, and Vail, and other places that we can’t pronounce.  And if the Facebookers do decide to plunk a chunk down on a house, who’s to say it will be in San Carlos?   Many people speculate that San Francisco may reap the benefit of the Faceboom.    After all, as much as we think that our downtown nightlife is cool, it doesn’t hold a candle to the City.

Something’s going to happen here, but I don’t think anybody knows exactly what.   So for now, just sit back and enjoy the spectacle that is an IPO.  And stay clear of the bars in Menlo Park and Palo Alto.  I think Friday night is going to be a record night for them too.

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