Silicon Valley: Housing Bust? What Housing Bust?

The U.S. housing bust continues to wipe out wealth in major markets nationwide. Then there's Silicon Valley. Investor enthusiasm for technology initial public offerings this year has resulted in big payouts for some workers, who are bidding up home prices in the well-off suburbs south of San Francisco. In May the median price of single-family houses sold in Palo Alto climbed 20 percent from a year earlier, to $1.6 million, the biggest jump since 2008, according to preliminary figures from research firm DataQuick. In Mountain View, where Linked In (LNKD) is based, prices rose 3.1 percent, to $957,500.

Share sales such as the mid-May IPO of LinkedIn—the stock more than doubled on its first day of trading—are helping tech employees fund all-cash purchases and fight off rival bidders. With Palo Alto-based Facebook expected to go public next year, some buyers are rushing to close deals because they believe home prices are headed even higher, says Kenneth Rosen, an economist at the University of California, Berkeley. "I suspect we'll see an explosion in the next couple years," says Rosen, chairman of the school's Fisher Center for Real Estate and Urban Economics. "You've got young people with real money, and it's not surprising they want to have a house."