Facebook Comes to Market with Record-Breaking IPO: The Bay Area Housing Market continues its own record-breaking lack of inventory trend

The much-anticipated Facebook initial public offering took place on Friday morning, raising as much as $18.4 billion – the biggest Internet IPO in U.S. history and the third largest IPO of any kind.  The $38 per share IPO opened their premier NASDAQ day of trading at $42.05, valuing the company at more than $100 billion. It jumped up to $45 on early trading, eased back to about $41, and as more steam escaped, closed the first day of trading just a mere 0.61% above the IPO opening value, at $38.23. 
 
Analysts are saying that a few factors contributed to the lackluster close not being near the conservatively anticipated 10% to 20% gain on opening day (some had predicted as great as 50% – recall that LinkedIn doubled on their opening day of trading).  Among the factors causing a disappointing close – the move by investment bankers to increase the offering price to $38 a share, and to expand the size of the offering by 25%, just a day before the IPO.  It also did not help that General Motors had stated just days earlier that it plans to stop advertising with Facebook Inc. after deciding that paid ads on the site have little impact on consumers’ car purchases, according to a GM official.  And what about the reported NASDAQ glitches in Friday’s trading?  It’s said that system failures wreaked some havoc on the debut day for Facebook.

Facebook stories are headlines in many publications this weekend, ranging from Zuckerberg changing his FB status to “Married”, to predictions that this coming week could see Facebook share values lower than the $38 IPO price. Global companies, similarly located in our backyard, LinkedIn and Zynga both saw declines on Friday after the meager FB debut.  That said, the month of May has not been kind to NASDAQ overall. 

Downtown Palo Alto

SO- what does all this say about the “Facebook effect” on Bay Area real estate? It’s hard not to believe that the IPO will ultimately have some ripple effect in nearby housing markets. We’re fairly certain we’ve been experiencing the FB effect in the weeks and months preceding the IPO.  Low inventory and multiple offers seemed to originate in Palo Alto and Menlo Park months earlier and quickly spread across the Bay Area.  Now that the IPO is official, there will be hundreds and hundreds of newly minted millionaires – and a handful of new billionaires – as a result.  It’s not unreasonable to assume some or even many of them will take part of their newfound wealth and invest in a home. A number already have in anticipation of the newfound wealth.

While some of the FB folks may choose to buy in Menlo Park, Palo Alto, or other posh suburbs near the company’s headquarters, it’s likely many younger employees (is that redundant at Facebook?) will end up living in some of the hip San Francisco neighborhoods where they can enjoy the vibe and energy of City life. We’ve heard from our offices and agents in both regions who are working with Facebook people.

In Menlo Park, our office manager says non-Facebook buyers are very anxious to snap up a home quickly because they’re fearful of an upcoming “tsunami” of FB buyers inflating prices once employees are allowed to sell their shares later this year. Traditionally, companies have a so-called lock-up period of about six months. But Facebook said this week that it has altered the lock-up expirations on some of the shares, freeing up a higher number of shares three months from now.

Facebook is also having an effect on sellers. Many who were planning to list their homes are waiting in anticipation of higher prices later this year when FB millionaires are freed up to cash in their shares. One word of caution about this strategy: Waiting for three to six months or longer in anticipation of FB buyers driving prices higher is no less of a gamble than guessing what will happen to the company’s stock three or six months from now.  Add to that the additional Sellers coming to market with the same strategy, and you’ve got more competition as a Seller.
Agents are counseling buyers about the market NOW versus what may or may not happen in the future. Right now, there is a tremendous shortage of homes for sale, especially on the Peninsula and in San Francisco. Sellers are routinely getting multiple offers – some as many as 10 or 15 – and their homes are often going for considerably more than the asking price.
There’s no telling what the economy might be like in six months. There are certainly a lot of questions out there that could impact the housing market. The economy is improving, but very slowly. The job market is still struggling to gain real traction. The geo-political issues in Europe are seriously impacting the stock market right here at home. And the uncertainty of the presidential election in the fall and its impact on tax policy and other issues make the outlook even murkier.

So while Facebook undoubtedly will have an impact on our local real estate market, just when, where and how much remains to be seen. Stay tuned!

[via Market Watch]


Janice Lee

International President’s Circle
Top Producer, Realtor
415-832-9151
JaniceFLee@Gmail.com
www.JaniceLeeHomes.com
DRE #01720205

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