by Wendy McPherson
With the Facebook employees receiving their now cashable stock in the middle of November, some home sellers are still waiting for that overstuffed suitcase full of money to be rolled across their front-door threshold. Facebook and all the other local initial public offerings (IPOs — approximately 20 in 2012 so far) will continue to impact housing in 2013. In addition to the local IPO's impact, the financial marketplace in general has rediscovered the positive side of real estate. Four pure real-estate plays went public this year (Trulia, Zillow, Realogy and American Real Estate Investment Trust). All were up 20 percent or more at the beginning of November. The public has faith in real estate again!
Nationwide, real estate is an asset class that could be relatively protected from the "fiscal cliff" also. Banks have sold enough of their inventory of foreclosed homes that they will present less competition to other homes on the market. Commercial real estate, specifically real-estate investment trusts (REITs), may get a bump if (read when) taxes on dividends go up as REITs are already taxed as ordinary income so they may end up looking better than the ultimate return on stocks.
As things start to normalize across the country, the housing shortage will be more evident. Nowhere will it be more pronounced than Silicon Valley and its environs given our land shortage and sparse residential building over the last few years. To quote Joel Singer (the long-time executive vice president of the California Association of Realtors), "Silicon Valley, because of its strong economy and interest from investors and foreign buyers, will make the transition to a more traditional equity based market, faster than other parts of the state. You don't want to be an IPO market; you want the market to be sustainable."
This traditional equity-based market has already started to happen up and down the Peninsula. Many cities have already reached their all-time highs. According to DataQuick, Palo Alto and Burlingame are but a breath away from their peak levels in 2008. Los Alto has had one of the strongest recoveries — the median price of homes sold in Q3 2012 was $1.97 million, up 1 percent from the 2008 median of $1.95 million. Menlo Park and San Carlos can certainly be added to that list and Atherton is coming up fast.
Buyers have been plentiful and in a buying mood and sellers have responded by seeking higher listing prices. We now may be reaching price equilibrium in some areas. We are seeing some houses fly off the market with active bidding wars and some sellers actually have to reduce their prices in order to attract a seller — something we rarely saw six months ago. This all speaks to the "normalcy" of the marketplace.
Some random statewide facts and stats point to a robust 2013: Unsold inventory is as low as it has been since 2004 representing a 3.7-month supply of inventory (currently Menlo Park, Palo Alto, Los Altos and San Carlos have about a one-month supply of inventory), share of home sales with multiple offers is the highest in at least the last 12 years; almost one third of buyers paid with all cash, and these cash buyers have been on the rise since 2006.
The California housing market is on track to increase the median price for 2012 by 10.9 percent. The forecast for 2013 is for that median price to increase by 5.7 percent (again CAR stats).
Silicon Valley will continue to outperform the rest of the state. The pressures on housing prices are numerous and there is no let up in sight. Add to that the 50-year low mortgage rates and you have the formula for a classic supply-and-demand curve and what we saw begin in January of this year. It will reach equilibrium at some point but the 12-month-plus outlook is very positive.
If you have a house to sell, you may still see that overstuffed suitcase full of money cross your front door threshold.