Remember "irrational exuberance"? Silicon Valley real estate buyers do.
Former Chairman of the Federal Reserve Alan Greenspan's turn-of-the-century words that became a catch phrase of the tech boom (and bust) have had a lasting impact on local real estate buyers. Gone are the stories of flying over Atherton in a helicopter, picking a house to buy even though it was not on the market, and paying $40 million for it. Gone are the days of folks forking over a million dollars above the list price for homes, although we have seen a couple of overbids up to $700,000 lately.
Those irrationally exuberant days coupled with the recession of 2008 have made buyers come to the realization that it is not every Californian's inalienable right to see an investment return on their homes. Sobering fact number one.
We in the real estate industry are just beginning to identify other factors that are creating a growing Sea Change, a clear trend that buyers now are more conservatively modest in both their natures and their spending habits on housing.
These younger buyers are the products of "information on everything at their fingertips" age, and their fingertips are the very roots of the green movement, whose mantra is "less is more." Forty-seven percent of the people who currently work at Facebook ride their bikes to work, arrive by public transportation or catch the company shuttle (companies such as Apple, Cisco, Genentech and Google also provide shuttles). In San Francisco, real estate agents were seeing certain pockets of houses run up in price — it turned out that those "pockets" are where company shuttles stop and buyers wanted to be able to walk to the shuttles.
A couple of Palo Alto companies are giving "allowances" to employees who buy within a certain radius of the office, hoping to lessen their carbon footprint. Downtown Menlo Park has seen older houses on bigger lots demolished to make way for two to four townhomes or condos. I am sure that some of those builders thought that retirees wanting to live close to town would be their target audience, but, lo and behold, young people are purchasing them.
In downtown Menlo Park, in Palo Alto and in other Peninsula cities, walk-to-everything or bike-to-everything locations are in great demand. Twelve years ago, there were no energy blackouts, no garbage swath the size of Texas in the oceans, no finite number of years until the oil runs out — all items in the news every day. Sobering fact number two.
Many of these buyers have seen their parents buy at the wrong time, spend too much money on their houses, or have seen them lose their jobs at age 50 or 60 still owing money on their homes. In some of the worst cases, parents have used their homes as ATM machines. Money is ephemeral — ask Mr. McAfee, of McAfee Computer Anti Virus fame, who had $100 million at one time (YES — $100 million!!) and now has a net worth of $4 million. The ultimate easy come easy go. Sobering fact number three.
Again, these are trends we are just beginning to identify, not to be confused with "everyone is doing it." The fact is that right now there are many people who can afford a great deal more house than they are actually buying. We are also seeing less leveraging of homes — much lower loan-to-value ratios, more cash and less loan. In fact, all-cash deals are at an all-time high right now.
Having said all this, are there any buyers out there for a $22 million house in Atherton that runs on geothermal heat?
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