Source: The Wall Street Journal
By YUKARI IWATANI KANE
The resurgence in the Silicon Valley tech industry is leading to a new boom in the area's real estate market, with rising rents and a scarce supply of homes to buy.
Sid Vismanathan, who sold his start-up to LinkedIn in January, purchased a three-bedroom house in Mountain View for $700,000.
When Ann Schneider advertised her 1,782-square-foot, three-bedroom town home in Mountain View for rent on online classifieds site Craigslist earlier this month, she was surprised to get nearly a dozen responses right away.
The modest house has a two-car garage and a backyard, and she had redone the master bath and repainted the walls so it looks in better shape than comparable units in the complex. But she also raised the rent 60% to $4,000 a month.
Nevertheless, she had one potential renter offer to pay two months up front, and another who came to look at the house ready to make an offer with a package of documents that included a copy of a completed rental application, a letter from his employer, additional letters of recommendation and a credit report.
"I've had offers over email without seeing it," said Ms. Schneider, adding that she hasn't experienced anything like it since she began renting the house five years ago.
Inquiries came from as far away as Spain, Germany and Finland, and many from people in the high tech or medical fields. She ultimately rented it to a family. The clincher was that they agreed to sign a two-year lease.
While the nationwide housing market continues to struggle, Silicon Valley is one among a small number of areas where demand is strong. According to website Rent.com, the amount of rent that tenants are paying rose 11% in the first quarter in the San Jose market, which includes Palo Alto, Mountain View and Cupertino, compared with a 2.5% increase nationwide.
Ann Schneider had many offers to rent her Mountain View town home.
Realtors and real estate experts, meanwhile, are reporting a dearth of properties for sale, which often is a precursor to rising home values. Real estate statistics firm Altos Research of Mountain View found that, this spring, an average of about 76 homes were on the market in any given week in Palo Alto—the epicenter of the boom—compared with 110 a year earlier and about one-tenth the number in a similarly sized market near Dallas or Atlanta.
While in some cities, a lack of homes for sale could mean that owners are taking their properties off the market because they can't sell them, Altos Research Chief Executive Mike Simonsen said the very small number of homes listed with reduced prices suggested that this isn't the case in Silicon Valley. Properties with reduced prices comprised just 4% of current listings in Palo Alto, compared with a little more than 40% six months ago and 25% a year earlier.
Additionally, properties that were relisted, most likely because they couldn't be sold, also comprised just 4% of listings in Palo Alto, at the low end of the area's typical range of 4% to 15%. The median sale price in Palo Alto has largely remained unchanged in the past year at about $1.7 million, he said.
Real estate agents already see evidence of a housing crunch in a handful of communities such as Palo Alto, Menlo Park and Atherton, which are known for their schools and are near many of the fastest-growing companies. They say a number of two- and three-bedroom houses that are less than 2,000 square feet have sold for $1 million to $2 million after receiving multiple bids.
"There's just not enough land to build [in this area]," said Keri Nicholas, a real estate agent in Menlo Park, though she added that the market appears to be heating up over the last five months at a slower pace and more unevenly than during the Internet bubble when "it happened very quickly and ended very abruptly." She said there were still pockets in the broader Silicon Valley area where homes are difficult to sell, especially in the lower-end price range where buyers might have a harder time qualifying for loans.
Those who aren't interested in buying or can't find adequate houses for purchase are looking to rent. Mara McCain, an agent at Alain Pinel Realtors, recently listed a three-bedroom 2,850-square-foot house in Menlo Park on Craigslist for rent for $9,500 a month. Despite the high price, she said she has received more than 20 inquiries. She ended up renting the house to a technology executive.
At the heart of the boom is the technology industry, led by heavyweights such as Apple Inc. and Google Inc., which has fueled jobs and created wealth in the area.
An additional factor has been the anticipation of public offerings from companies such as Facebook Inc., valued by some investors at more than $70 billion and expected to go public as early as next year. Already, employees and others who have received private shares can sell them through specialized markets.
"All of a sudden, there are a ton of millionaires coming out because of Facebook," said Katie Hammer Riggs, an agent at Coldwell Banker Menlo Park.
Already, the initial public offering of another tech company, LinkedIn Corp., a professional networking site based in Mountain View, is prompting some employees to upgrade their homes.
Sid Vismanathan is a 27-year-old co-founder of a business card reading app called CardMunch that was acquired by LinkedIn in January for an undisclosed amount. After the May IPO of LinkedIn, Mr. Vismanathan this month purchased a 1,500-square-foot, three-bedroom house in Mountain View for $700,000, upgrading from the $400 a month he paid for a two-bedroom rental apartment shared with two others.
"I felt like it was a good deal," he said, adding that he lucked out because the owners wanted to sell quickly. "It was on the higher side of my budget, but it was a single-family unit and nothing of that similar type of house has sold for less than $769,000 in the last year," he said.