Silicon Valley Sure Is Spending Like There's a Bubble

If all the Facebook, Pinterest and Spotify over-valuation talk this week hasn't signaled a tech bubble, the spending happening in and around Silicon Valley should do the trick.

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As the rest of the country is still living out a sluggish economic recovery, all the Facebook, Pinterest and Spotify over-valuation can be seen in and around Silicon Valley. The housing market in San Francisco, for example, is blowing up, but given how localized the boom is, it's more evidence that this selfish social media bubble's economic effects are pretty contained.

Depending on whether your homeowner or a homebuyer (or have Facebook/Pinterest/Spotify stock or not) the housing market is either amazing or terrifying. Take this opening anecdote from a post titled The Facebook Effect On San Francisco Real Estate: It’s Very Real from The Basis Point's Julian Hebron: "Three weeks ago some clients wrote a $1.25m offer on a 1,400 square foot 3-bed, 1-bath house with original kitchen and bath near San Francisco’s Dolores Park. They weren’t even close. There were 51 offers. It sold for $1.4m and closed eight days after offers were due," he writes. It sounds like the boom is back! Curbed SF puts some numbers to that insane anecdote, with its map of the dramatic increase in rental prices in San Francisco. Some neighborhoods have seen 60 percent increases in the last year alone. Hebron also has an upward trending chart of house and condo median sales prices, which have risen around $100,000 per sale in the last six months alone.

Unfortunately, though, all this exuberance seems to be contained to the areas where people who work for hot tech companies tend to live. The Federal Housing Finance Agency reported that nationally housing prices fell 2.4 percent in the fourth quarter of 2011, the most recent figures available. And it was even worse in California, hard hit by the housing bubble bursting, where prices fell 4.6 percent for the quarter.

It's a good 45-minute (or much more in rush hour) drive south from San Francisco to the tech companies in Silicon Valley. But a lot of tech jobs have migrated up the coast, as Hebron notes, with both Twitter and Zynga based in San Francisco. And many of these young, stock-rich tech employees prefer living in the hipper city to the north rather than the drab suburbia of the south. Those who do call Silicon Valley home are spending quita bit, too, however, as The Los Angeles Times's Jessica Guynn notes. Per Guynn:

Upscale stores and restaurants are packed. Good luck getting a table at Madera in Menlo Park, not far from Facebook's headquarters. The see-and-be-seen restaurant at the swanky Rosewood Sand Hill hotel is booked solid for lunch almost daily.

Luxury cars are flying off dealers' lots. In San Francisco, San Mateo and Santa Clara counties combined, luxury vehicles accounted for nearly 21% of new car registrations from April 2011 to March 2012. That's almost double the national average, according to automotive research firm Polk.

"I have rarely, if ever, seen the luxury mix this high," analyst Tom Libby told Guynn. "These data clearly show that there is wealth — and a lot of it — in these counties." It's clear where all this money is coming from. Facebook is about to turn out a bunch of very wealthy people. Not to mention it just bought Instagram for $1 billion, and we saw Zynga, Yelp and LinkedIn all go public within the last year.

But here's where it gets scary: "The San Francisco buyer mindset is that they want to get in before they’re priced out, but they either haven’t reaped their firm’s windfall yet or don’t expect much if any windfall from their firm," writes Hebron. The same optimism that's driving these huge valuations is also driving this buying spree. "We're back to the Kool-Aid-drinking times," a Palo Alto builder James Witt told Guynn. "Everyone feels confident again," Ken DeLeon, a real estate agent, added. "Everyone has the mind-set that their net worth will be higher next year." But, what if it all comes crashing down? This all feels reminiscient of the dot-com era. "We’re getting the second wave of dot-com kids," broker Abigail Glynn told the San Francisco examiner last August, before things had even gotten to this level. Getting the dot-com comparison is not a compliment.

Image via Shutterstock by Mykhaylo Palinchak.

This article is from the archive of our partner The Wire.