House prices in California’s Silicon Valley are defying the national housing slump, thanks to increased wealth from initial public offerings and technology stock sales.
Workers are spending their new found wealth on homes in the suburban cities south of San Francisco. The median price of a single family house in Palo Alto, home of Facebook, increased by 20% year on year to May to $1.63 million, according to figures from San Diego based DataQuick. This is the biggest increase since 2008. Prices in Mountain View, home of LinkedIn, rose by 3.1% to %$957,500.
House showings in Palo Alto have tripled over recent weeks, and the average age of buyers has declined from the mid-fifties to the mid-thirties. Daniel Sicilano, associate Dean at Stanford Law School says “People at start-ups have a lot of pent-up demand and tend to spend a portion of their new liquidity pretty quickly. They want to manifest their wealth.”
Kenneth Rosen, an economist at the University of California-Berkley, thinks this is just the start of the story, and that prices will continue to rise over the next few years as more newly wealthy young people seek to buy homes.
Nearly 300 companies have filed for IPOs this year, which is the highest number for this period since 2000, and over 10% of these companies are located in California. According to Bloomberg, Silicon Valley is a major hub for early stage companies, and it received nearly 40% of the $23.3 billion in venture capital firm investments last year.
Most of the real estate gains are located in the San Jose metropolitan area, such as Cupertino and Saratoga, where median prices of over a million are already considered normal. This is in stark contrast with the rest of the US, as home prices are now at their lowest level since 2003. According to the S&P/Case-Shiller index, values have declined by an average of 33% since their 2006 peak.