San Francisco’s IPO Effect, Revisited

Late last spring, the big buzz in San Francisco real estate was about all the newly-minted millionaires from area IPOs and how that influx of cash would impact the local housing market. At the time, major publications bested one another with breathless predictions of skyrocketing prices targeting this new class of buyers. Agents in the city had a more pragmatic approach, but really, it was a wait-and-see moment. And since hindsight is 20/20, let’s revisit San Franciso’s IPO effect.

A Fizzle, Maybe, But Not a Flop

Overhyping can have an interesting effect. The frantic predictions and the overblown hype stirred the pot enough that some sellers kept listings off the market to coincide with the predicted influx of new millionaires. At the same time, some buyers dove in sooner than they might have to avoid the competition. The dynamic had a measurable impact on area supply and demand, but the second quarter of 2019 still ended up with strong market dynamics in San Francisco and the inner East Bay — the two areas most affected by the IPOs. The city had a modest year-over-year increase in median sales prices in the second quarter, and most listings sold rapidly, with the standard level of overbidding. In general, buyer demand was greater than available supply, and sales were particularly strong in the high priced range of $2 million to $4 million.

Now, of course, those same publications are inflating the lack of effect from the IPOs, which they characterize as a complete flop. It’s another bad take. While the city wasn’t flooded with overnight millionaires, many tech workers did come into significant new wealth. Truly, it’s the ultra-luxury condo market that has softened. In a bid to cash in on the new area millionaires, a large amount of luxury condo construction rushed onto the market. Developers overestimated the number of buyers in the highest price ranges, and supply is now outweighing demand. It’s the only segment in the city that could qualify as a buyer’s market.

A Good Take

In April, I shared my opinion of what was then the upcoming IPO effect and how it might impact the seasonality of the market in spring and fall. Call me a skeptic, but my instinct was that the IPOs wouldn’t live up to the hype, and that anyone waiting until summer to list would miss out on the spring selling season, which history has shown is the time to sell. It’s always gratifying when your predictions pan out!

If you’re buying or selling in San Francisco this coming year, there’s something to be said for having experience on your side. I’d love to talk with you about your plans, and I invite you to contact me today.

CalBRE #01224570

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