Snapchat's First-Time Millionaires May Not Drive Up Home Values If Stock Continues to Tank
Early investors and shareholders of Snap Inc. (SNAP) - Get Report received their first opportunity to sell their shares on Monday, which could create a whole slew of high net worth individuals in the Los Angeles area who could invest their new wealth by purchasing homes.
The first lock-up period expired on Monday, which means some shareholders, many of whom were among the first investors in the company, could divest the estimated 400 million shares. Headquartered in Los Angeles, Snap's shares dipped on Monday, but recovered. The shareholders include CEO Evan Spiegel and CTO Bobby Murphy along with venture capital firms Lightspeed Venture Partners and Benchmark Capital.
Employees received shares as a part of their compensation package, but the downward trend could diminish their enthusiasm to divest the shares and allocate their newfound wealth into real estate or investments. When lock-up periods expired at other tech companies, such as Facebook (FB) - Get Report and Twitter (TWTR) - Get Report , the surrounding areas of these companies experienced a housing price boom. The middle class was also squeezed, forced to move even farther out to battle congestion.
A price boom in housing in Los Angeles may lag behind as shares of Snap have been on downward slide since its initial offering price of $17, hitting an all-time low of $13.81 on July 28. Snap has another lock-up period set to expire in August when an estimated 800 million shares could be sold by employees, directors and other parties.
Inventory in Los Angeles is already meager, creating more pressure on the current housing market, especially around Santa Monica, which is very popular because of its proximity to beaches and waterfront property, said Ralph McLaughlin, chief economist for Trulia, a San Francisco-based real estate website.
Watch More with TheStreet:
- 5 Ways Companies Are Using AI to Secretly Change Your Life
- Around the World in 5 Insane Pizza Hut Pizzas
- This Nissan Technology Prevents Kids From Being Left in Hot Parked Cars
- Tesla's Elon Musk Is All Jokes as the Model 3 Accelerates into "Production Hell"
"Snap's employee restricted stock sales will likely put upward pressure on the housing market in and around Santa Monica," he said. "The low inventory and strong demand will no doubt act as price appreciation catalysts if sellers of Snap's restricted stock decide to put their proceeds into the region's housing market."
The presence of tech behemoths such as Alphabet (GOOG) - Get Report and Facebook, which have added offices to Los Angeles, has pushed up real estate prices in the city in the past few years. The values have almost doubled in a really short period of time and faster than in a typical real estate cycle. Tech employees often have a competitive mentality, leading them to "imitate or duplicate the same thing," said Greg Moers, a real estate agent with Triplemint Real Estate in New York, who used to conduct commercial and real estate development in L.A.
"These are very smart people and they are competing within themselves and the industry, both on a personal and professional level," he said. "They are the ones driving up the pricing."
The prices and values of the homes are not likely to depreciate and has risen quickly in the past five years.
"These guys are making a lot of money and real estate values won't decline significantly," said Moers. "They see L.A. as this shiny box that they want to be a part of. They typically go for showy homes and it's a boastful city."
Buying Homes in Competitive Markets
Not everyone has the opportunity to be part of the glamour that L.A. exudes. Middle class workers are finding it increasingly harder to remain in the city as prices for rentals and homes continue their upward climb.
Some homeowners have sought neighborhoods offering cheaper alternatives such as Century City, Koreatown, Westwood, Culver City, Hermosa Beach, Huntington Beach, Hawthorne, Torrance, Long Beach or Beverlywood, he said.
"They want to be close to the freeway or the streets that take them to the beach," said Moers.
- Introducing One of the Only Executives That Appear Wildly Bullish on Snap's Prospects
Purchasing a home in a competitive market can be frustrating and arduous, but homeowners who work with a lender, real estate agent and a home inspector before they make an offer can accelerate the process, said McLaughlin.
Starter home buyers have an advantage because they are not selling a home simultaneously and can adjust their closing dates much easier.
"Most sellers are also buyers and will also be trying to snag a fast moving home," he said. "Sellers often need flexibility on closing dates."
Exasperated buyers who want to move the process along faster should take a look at homes which need some minor home improvements or a less trend neighborhood.
"They may have better luck seeking out the ugly ducklings of the housing market," said McLaughlin. "Instead of trying to strike quickly as soon as a home comes onto the market, buyers might want to consider looking for homes that have sat on the market for a while and figuring out why. All it takes is just one that isn't a deal-killer to find success."
More of What's Trending on TheStreet:
- I Am a Millennial Who Just Went to Kmart for the First Time Ever and Couldn't Believe This Place
- Apple's Hometown Is Among 10 of the Most Overvalued U.S. Housing Markets
- Got a Mouth Like Mooch? Why Swearing at Work Could Get You Fired
- Here's How Much Money Warren Buffett Has Made on Apple Stock in 2017 Alone