By now you’ve probably heard that there are lots IPOs set to blast off for San Francisco-based companies [if not, then take a read here]. The impact of these IPOs will flood the city with copious amounts of cash and a bevy of freshly minted millionaires, who will then push already sky-high real estate prices out of this world.
A popular variation of this story is that many sellers who would otherwise list and sell their properties now are instead withholding their properties until IPO money hits the market to list the property to take advantage of the anticipated forthcoming cash surge.
But if you delve deeper into these propositions you’ll see there’s more to it than those eye-catching headlines.
Three Reasons Why Money Won’t Fall From the Sky Today…
One: Will there really be that much cash out there? Maybe but the Facebook IPO is instructive as the company’s shares did not go crazy and went down by $20 a share in the first few months after its IPO.
(Okay, eventually, the stock went up and cash flowed forth.)
Two: Assuming there is more cash on the market and in the accounts of all those coders and sales people, the question then becomes: when will that cash be felt on the market? What many forget is that IPOs are usually followed by restrictive periods of 6 months to a year after an IPO during which employees are barred from cashing in their RSUs or selling options. And a lot can happen to a stock during that time.
(And remember we’ll be in an election cycle by the time money from 2019 IPOs hits the market and who knows what the world will be like then.)
Three: Just how many employees are there who stand to benefit? Not that many, right? The headcount at many of the darling unicorns of the tech IPOs is relatively small.
So is now a better time to buy or later?
So, if even just a single property owner decides to hold on to their property for longer than they would have otherwise, prices will rise in the short term because that will mean one less property to buy thus driving up scarcity and prices. Indeed, the data from when Google IPO’s in 2004 that condo price growth in District 5 held at a steady 15% clip while house prices rose 5% faster than the year prior to the IPO.
The take-away: prices for single-family homes will increase post-IPO at a higher rate than they would for condominiums so buy now while you can while interest rates are lower than they have been over the past 2 years.