March 15, 2019
On the daily, Bay Area residents are living through two of the most talked about topics at the national level: technology and real estate. A recent story from the New York Times – When Uber and Airbnb Go Public, San Francisco Will Drown in Millionaires – takes the Bay Area tech and real estate conversation to the next level.
We sat down with two of our own Bay Area real estate experts and asked them what the SF tech IPOs mean for the region, and here’s what we heard. The bottom line: If you’re contemplating buying in the next year, it’s better to buy sooner rather than later because we expect home prices will go up at an increasing rate in the areas surrounding the headquarters of Uber, Lyft, Airbnb, Pinterest, and Slack. Just to give you an idea of what could happen, back in 2004, Google’s IPO played a role in the 11% increase in prices in the San Francisco and Bay Area.
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Lucas: If you’re ready to buy, do it now before the onslaught of overnight millionaires arrive. Otherwise, you’ll have to make way and accept an even more competitive environment once they do. Seller’s are already anticipating their arrival.
John: Over the weekend I had this exact conversation with a buyer couple I met at an open house. It’s hard to tell people that they have to buy now, but none of us have a crystal ball, and you can’t wait to see what happens. If you’re looking at a house that’s $1.5M now, even if the market continues to go up a standard 8-10% every year, that same home next year will be $1.65M. If you wait to buy, you’re not going to be able to get the same home you wanted this year. Not unless your income goes up at the same rate.
Lucas: Exactly. And that’s without considering these new millionaires even entering the market. Time is of the essence for the everyday SF buyer.
John: The best advice I have for people looking to buy now is that it’s not impossible to get into a home. Move farther out. Get 70-80% of what’s on your wishlist for a home. If you can get in a home now and build equity, jump on it.
Lucas: Agree. Buyers need to snatch up their home before the arrival of these cash-rich buyers makes the market a whole lot harder. And Reali’s cash back can help give you that extra purchasing punch that these IPO’s are requiring. Once they arrive, I think these IPO buyers will move on unique homes with charm, nearby amenities, and good walkability, and leave the more standard or underwhelming homes for the rest.
John: For sellers moving out of state, I’d tell them to hold out until the market improves if they can wait. Making the most return on your investment makes sense — especially if you’re downsizing, retiring and keeping the money for your retirement. If you’re selling your home to buy a bigger one and staying here, do it now, before the IPOs so you can get the most home for your money.
Lucas: I think the IPO buyer will have a particular eye for the scarce home that ‘checks all the boxes’ while the less sought after homes will remain available for the everyday buyer. In this case, sellers should wait if they have a fitting product. However, sellers need to temper their expectation to anticipated high prices or a frenzied market upon the arrival of these cash plump buyers. These employees have waited patiently for this money. I feel that just because they are becoming overnight millionaires doesn’t mean they are going to start spending their money recklessly.
Lucas: Now that you’re in a good place financially, it’s all about making smart and sound real estate decisions. You’ll have extra purchasing power, you need to make moves that make sense for where you are and what you want. I foresee the $2-4M price point to be popular with these new millionaires. Particularly newer condos for single, young buyers (think Mission Dolores, South Beach, and Dogpatch in San Francisco) and really well-suited family homes with charm (found in SF neighborhoods like Noe Valley, Pac Heights, Potrero Hill, West Portal, and Laurel Heights). IPO buyers with an eye for upside will look toward neighborhoods located on the outskirts of town (Sunset, Excelsior, Crocker Amazon, Bayview).
Don’t be reckless with your newfound wealth. If you work with a real estate brokerage like Reali, you can keep a lot of your money thanks to our cash back rebate instead of paying a traditional real estate agent thousands of dollars in commission.
John: Definitely. A traditional agent is also going to tell you what you want to hear to get you to buy. Also, keep in mind what the financial implications will be for you if you’re buying your first home, upgrading, or buying an investment property. It’s an exciting time but good advice (and timing) is everything.
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John Nelson and Lucas Clot are Reali Experts with over 35 years of combined real estate experience in Bay Area real estate. John joined Reali after 30 years at Coldwell Banker, and Lucas came to Reali after working for both Compass and Paragon Real Estate Group.