Just 2.6% of homes in the metro are affordable on the area’s median income, and the influx of cashing coming from this year’s IPOs could push homeownership further out of reach for most residents.
The San Francisco metro, the most expensive large housing market in the U.S., is unaffordable for most of its residents: Just 2.6 percent of homes for sale in the area are affordable on the area’s median income. And while the Bay Area real estate market showed some signs of cooling in the beginning of the year, local Redfin agents expect the wave of IPOs from San Francisco-based companies, combined with low mortgage interest rates, to lead to a renewed increase in home prices and sales.
“Every single homebuyer I’ve met in at least the last two months mentions IPOs and low rates as reasons to start their search for a property. I’m seeing our market become more active and more competitive, and I believe it will become even stronger in the fall,” said San Francisco Redfin agent Carina Isentaeva. “Buyers who stand to make money from the public offerings taking place this year or next year are looking at homes because know they’ll soon have enough for a down payment.”
The typical home in the San Francisco metro sold for $1.43 million in April, on par with a year earlier. Home prices in the area are likely to continue to rise, partly due to the cash tech employees will have on hand once Uber, Lyft, Slack, Pinterest and Airbnb have all gone public and applicable lockup periods have ended.
“While the IPOs will put cash in the pockets of some San Francisco residents, they will ultimately contribute to wealth inequality in the area,” said Redfin chief economist Daryl Fairweather. “The housing affordability crisis in San Francisco has been decades in the making, as its housing stock has failed to keep pace with demand. Without a significant increase in housing supply, prices will rise even further away from the typical resident’s budget and only people like wealthy tech workers will be able to afford a home in the city. People like nurses, teachers, nonprofit workers and artists will continue to move further away from the city center, and many of them will leave the area altogether.”
Isentaeva is working with a few homebuyers involved in the Lyft IPO, which took place in March, and one who is an employee of Airbnb, which could go public by the end of the year. To help employees of these companies make bigger, stronger offers, some mortgage lenders are taking buyers’ prospective stock compensation into consideration when deciding on a loan preapproval amount.
“The Airbnb employee wanted to move quickly because he noticed a lot of buyer demand. He looked at a gorgeous four-bedroom condo listed just above $1.5 million, loved it and put in an offer for $1.8 million three days after it went on the market to try to avoid competition. And it’s a good thing he offered above asking price because the day after he went under contract for the condo, another buyer offered an additional $50,000,” Isentaeva said.
“Another client, an investor in Lyft, is aggressively looking to buy an investment property in San Francisco before the IPO lockup period ends and more cash flows into the city,” she continued. “And still another buyer, who previously worked at Lyft for several years, was recently outbid on a small condo in the Mission neighborhood of San Francisco that had a total of 10 offers. Now he’s looking at properties further away from his ideal location so he can close on a home before even more IPO money enters the city later this year.”
Kalena Masching, a Redfin agent who focuses on the San Francisco Peninsula, which includes cities like Palo Alto and Mountain View, is also working with a homebuyer whose employer is going public this year. “He’s doing in-depth research on neighborhoods now so he can jump in and start making offers the second the money he’ll receive from selling his shares hits his bank account,” Masching said.
Local Redfin agent Miriam Westberg said she’s working with a few Uber employees on their home searches. One is looking to upgrade from a condo to a single-family home, and the other is a renter looking to buy her first home in San Francisco.
Bay Area Redfin agents are also seeing a rise in interest among homebuyers who won’t see an influx of IPO cash.
“My other clients, those whose employers aren’t associated with IPOs, are actually even more motivated than the ones who may be getting an influx of cash,” Westberg said. “They want to buy homes as soon as possible to avoid what they think will be increased competition. And they’re right to think that the market is getting more competitive. Over the last couple of months, we’ve definitely seen increased activity in the San Francisco market, including multiple offers, similar to what was going on in early 2018.”
Masching also noted that her clients are anticipating an uptick in competition. “Even though most of my clients won’t be coming into IPO money, the topic is definitely on buyers’ minds. Many people I’m working with are fast-tracking their search in case the public offerings push up home prices, which I do think will happen,” she said.
If Uber and Lyft employees were to hypothetically pool the money they’ll receive if they sold all of their stock compensation (once their companies’ lockup periods are over) and put it all into San Francisco real estate, there would quite literally be nothing left for anyone else. Together, Lyft employees could purchase every single home for sale in the city of San Francisco. And Uber employees could pool their cash to buy every single home for sale in the cities of San Francisco, Oakland and Berkeley combined.
Updated on July 15th, 2019