Housing Gold or Fool’s Gold?

Posted On: March 15, 2019
By: Matt Fuller
IPO wave in San Francisco gold for San Francisco housing market or overlooked factors more important?


When the New York Times declares that your city is about to be eaten by millionaires, and suddenly people from all over the globe are sending the same link (thanks, got it!), is it media hype, the next big thing, or sloppy thinking? Lyft, Uber, Slack, Airbnb, and others are expected to go public and generate a healthy crop of new millionaires in 2019. What does that mean for buyers and sellers in San Francisco?

The Research

Zillow’s research piece from February 4 relating to Facebook’s May 2012 IPO was the first to get much attention. Their data showed that more Facebook employees in a neighborhood correlated with prices rising faster than the average neighborhood. These were suburban areas mostly near Facebook HQ in Menlo Park, CA.

Kathleen Pender of the SF Chronicle picked up on the Zillow study and others on February 5. One looked at IPOs in California, the other across the nation. Both found an increase in luxury home prices near the newly public company’s headquarters. The IPOs accounted for an increase in home prices of between 1 – 4% within a few miles of a headquarters and were mostly in suburban areas.

The Media Blitz

The NY Times kicked off the media frenzy on March 7 with a story more broadly about all the things new millionaires like to buy, which does include real estate. CBS Marketwatch published a version on the 9th. Yahoo Finance published their version on March 10. Forbes on the 11th. The echo chamber is open for business!

What’s Being Overlooked?

  • Zillow points out that their data suggests an impact for “some neighborhoods” and that because of SF’s denser housing style “…any observed trends are likely more susceptible to unobserved dynamics…”
  • The CA IPO paper found that housing demand in their study changed when a person’s wealth changed, not when their liquidity changed. In other words, people spent their equity on housing before their company went public and the equity was easily sellable. This suggests that SF may have already felt much of the effect of this new wealth.
  • In 2012 home prices were near their cyclical low after the 2008 economic downturn and we were at the beginning of a business cycle.
  • If one company has a poorly performing IPO, concerns about market weakness may delay or cancel other IPOs planned for the year.

What does it mean for buyers and sellers?

Newly spendable cash has never been known to hurt a housing market. How will new cash in the city interact with historically high prices and low supply during an extended expansionary business cycle?

Buyers may face increased competition against cash offers in 2019 – if you are in a position to buy now and find the right property, buy it. If you’re selling, timing a sale to correlate with IPO activity alone may overstate the importance of the IPO relative to other market factors and be a recipe for disappointment.

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