– Co-founder and CEO of the Sereno Group, Chris Trapani is known as a savvy and personable real estate executive. In 2006, its first year of operation, Sereno generated $500 million in sales. This year, it anticipates more than $3.2 billion, most of it in Silicon Valley’s Santa Clara County.

We asked Trapani to make sense of the real estate market in the heart of Silicon Valley: the notoriously tight supply of available homes and the persistent demand that keeps driving prices up. Some excerpts:

Q: What’s your take on this crazy Silicon Valley market?

A: The overall dynamic is something I’ve never seen before. I’m referring to a sustained, really ridiculously low level of inventory — not just kind of low, but ridiculously low — along with sustained buyer demand and strong appreciation that has been going on for a long time now.


Q: Is this the lowest inventory level you have ever seen?

A: It’s extremely close. In January of 2000, right before the Nasdaq peak, there were just 943 active listings in the county — that’s our all-time low for the start of a new year, and it included both single-family homes and townhouses. These last three years, we’ve been running around 1,100 to 1,200 active listings in January, which is still crazy low — and this August stood at 954.


Q: With that little inventory, it doesn’t take many buyers to buoy the market.

A: You’re right. Sereno has an online tracking system that shows about 1,800 buyers in our pipeline alone — and there were only 954 active listings in the county for the month of August. So our buyers alone could conceivably gobble up the inventory that’s out there, twice over. In other words, Sereno has 5 percent of the Santa Clara County market, yet our firm has twice the number of buyers as there are listings in the entire county.


Q: Which parts of the county have the most inventory?

A: Historically, there’s probably been more homes available in San Jose, because it’s not as convenient to the tech centers of Palo Alto and Mountain View.


Q: That’s now changing?

A: Yes, and it’s happened for two reasons. Palo Alto, as an obvious example, appreciated more rapidly and more significantly than other markets, and was followed by Mountain View and Sunnyvale. Those markets increased faster and at a greater rate than all the rest. Then naturally, as buyers get priced out, they begin to look to other areas.

The second reason is the whole Google San Jose aspect. That announcement alone has significantly increased residential buyer interest all around San Jose. People realize the tech money is significantly going to move southward, so now you increasingly have buyers — who might otherwise stay on the Peninsula — coming down and competing for properties. Trying to uncover what is allowing people to seemingly have this endless ability to keep outdoing the next person is — it’s perplexing.


Q: What have you uncovered ? What are your theories?

A: The obvious thing is that the Nasdaq has been over 6,000 for a while; that’s a lot of equity that people have that they’re able to translate into housing. That’s the no-brainer.

Another appreciation driver is the increasing use of restricted stock units — known as RSUs — in loan qualifying.


Q: Explain.

A: A growing number of people employed in the Bay Area have RSU plans; lending officers say an increasing majority [of buyers] are qualifying by including these plans as income. The borrower qualifies based on an average of 24-month prior receipt of RSUs in addition to their vesting schedule going forward.


Q: I need an example.

A: Let’s say I work at Google. I’ve been there for two years. They grant me 50 shares a quarter under a vesting plan. Every quarter I receive these 50 shares at $950 a share resulting in $190,000 in additional annual income. This RSU income is added to my base salary for qualifications purposes.


Q: Does this create any longer-term risk? Is it a risky loan practice for the market?

A: I think there’s more risk than if I’m qualifying from a base salary alone. Certain assumptions must be made regarding the future value of Google stock, in this example. And if my loan is for 30 years, and I’m only guaranteed three years of vested income with the RSUs, can I expect this additional qualifying income to continue beyond that? These are factors that need to be considered when evaluating the sustainability of present values, at least in the near to midterm. I am overall bullish on the long-term value of Silicon Valley and Bay Area real estate, regardless.