May 31 (Bloomberg) -- Facebook Inc.’s Silicon Valley hometown has a limited supply of real estate available for its newly minted millionaires as sellers await further price gains in a market buoyed by growing wealth from technology businesses.
Home listings in Menlo Park, California, a leafy town about 30 miles (48 kilometers) south of San Francisco, fell 9 percent in the year through April compared with the same time in 2011, data from MLS Listings Inc. show. The number of new properties coming to the market decreased for the eighth time in 12 months.
The initial public offering of the world’s biggest social network, which raised $16 billion on May 17, is contributing to surging real estate demand in Silicon Valley’s tech enclaves and bolstering values amid scarce inventory. The median price of a home sold in Menlo Park jumped 8.5 percent to $1.19 million in the first quarter, according to research firm DataQuick.
“The market was already hot, and now there’s more pent-up demand,” said Jim Harrison, chief executive officer of MLS Listings, a Sunnyvale, California-based publisher of home listings for San Mateo and Santa Clara counties in the heart of the Valley. “Buyers are going nuts, but sellers are holding back.”
Facebook, which has fallen 22 percent since its IPO, is only one factor fueling wealth creation, said Michael Dreyfus, founder of Dreyfus Properties, a brokerage with offices in Menlo Park and the neighboring city of Palo Alto. Hiring at Apple Inc. and Google Inc., as well as law and finance firms, has yielded a “very broad-based and healthy” surge in real estate, he said on Bloomberg Television’s ’’Bottom Line’’ on May 23.
A “savvy bunch of sellers” has purposely kept their homes off the market in desirable areas in anticipation of the IPO, Dreyfus said. Listings haven’t been this scarce at this time of year since 2005, when house prices neared peak values, said Theresa Dreike, an MLS Listings spokeswoman.
“With so many people looking and so few homes available, the market is squeezed and sellers can get whatever they want,” said Stephanie Seeger, 39. She and her husband bid $86,000 over the asking price to win a four-bedroom home with about 2,300 square feet (214 square meters) in Menlo Park’s Willows neighborhood. The $1.88 million purchase is scheduled to close today, she said.
Across the U.S., a scarcity of homes for sale is boosting property values, from foreclosure-stricken Florida and Arizona to more robust markets in Texas and coastal California. Home listings totaled 2.54 million in April, the lowest for the month since 2005, according to National Association of Realtors.
Waiting It Out
In hard-hit areas, people who owe more than their homes are worth, known as negative equity, are crimping supply by refusing to unload their property at a loss, said Stan Humphries, chief economist of Seattle-based real estate service Zillow Inc. Sellers in Silicon Valley, on the other hand, are motivated by maximizing price and can afford to wait as job growth and the economy improve, he said.
Home values in the U.S. should be “modestly stronger” by the end of the year, rising about 3 percent, Barclays Plc analysts in New York said in a May 23 note. All nine regions in a Federal Housing Finance Agency housing index showed price gains in March. The gauge climbed 2.7 percent from a year earlier, the biggest increase since November 2006.
“You’ve got a lot of people with negative equity who want to sell but can’t, and people in affluent areas choosing not to sell,” Humphries said in an interview. “A pattern of materially stronger demand is emerging, but there’s a big constraint on supply.”
Cupertino, Palo Alto
In Cupertino, home to Apple, inventory this year through April fell 15 percent, and new listings dropped for the 10th time in 12 months, MLS Listings said. Prices climbed 2 percent in the first quarter from a year earlier to $1.1 million, according to San Diego-based DataQuick. In Facebook’s former home of Palo Alto, adjacent to Stanford University, new listings declined for the 11th month, and prices jumped 22 percent to $1.6 million.
Facebook announced in February 2011 that it would move to an empty Menlo Park office campus in a lease deal that was the area’s largest in 20 years. The 1 million-square-foot complex, dubbed 10 Hacker Way, was followed by a $250 million renovation that’s still under way. About 2,400 employees work there.
Menlo Park, a favored locale for affluent San Francisco residents from the mid-19th century to build summer homes, retains a discrete, modest feel in the shadow of Palo Alto and Atherton, its wealthier neighbor to the north, said Captain Tom Calvert of the Menlo Park Fire Protection District.
The city has restrictions on renovations and remodels, said Penelope Huang, owner of RE/Max Distinctive Properties and an MLS Listings board member. It doesn’t allow non-retail signage for new businesses on Santa Cruz Avenue, the commercial corridor, and a 1979 Heritage Tree Ordinance protects any living tree with a diameter of 15 inches or more, she said. Cutting one down is against the law.
Purchases of Menlo Park’s most expensive properties, more than $2 million, rose 75 percent this year through May 8 compared with the same period in 2011, to 28 homes, said Mark Church, assessor and recorder for San Mateo County.
Demand in Menlo Park may be limited among Facebook employees who aren’t ready to purchase property or don’t want suburban homes, said Michelle Taser of Dreyfus Properties.
“They’re kids and want to live in San Francisco,” said Taser, showing a four-bedroom house with 3,070 square feet on Sherman Avenue in West Menlo Park, where the original owners raised two children after acquiring the property in 1993. “They want to buy cars and drink beer.”
About 47 percent of Facebook workers participate in its commuter program, taking bus shuttles, trains or ride-sharing cars to the campus from San Francisco and other cities in the region, said Tucker Bounds, a spokesman for the company.
Taser’s property, priced at $1.99 million, drew large crowds over two weekend days, with only a handful of 125 marketing flyers left over, she said after a Sunday open house. Low inventory in Menlo Park meant the sellers planned fewer than two weeks of viewings, she said.
The sellers agreed yesterday to a bid about 7 percent over the asking price after receiving five offers, Taser said today.
Facebook Chief Operating Officer Sheryl Sandberg, 42, who owns about 27 million Facebook shares and vested restricted stock units, is perhaps the most well-known employee who owns a home in the town. A trust controlled by Sandberg and David Goldberg bought property in Menlo Park in December 2009 that was valued at $2.9 million in its most recent tax assessment, according to public records.
Facebook founder and CEO Mark Zuckerberg, 28, bought a house in Palo Alto last year.
Some shares held by Facebook workers can’t be sold until six months after the IPO under U.S. Securities and Exchange Commission rules. In the meantime, the office campus will generate new commercial-property tax revenue, and retail sales are bound to increase as well, said Church, the county assessor.
Newly-rich Facebook workers seeking to live close to the office may ultimately see the appeal of Menlo Park, he said.
“These new millionaires are waiting to receive their money,” said Church. “We expect that to occur, but we really won’t know the true benefits for another year or so.”
To contact the reporter on this story: Dan Levy in San Francisco at email@example.com
To contact the editor responsible for this story: Kara Wetzel at firstname.lastname@example.org