'Facebook Effect': Palo Alto Home Prices Up, Inventory Down

Mark Zuckerberg may have been content renting a modest bungalow, but chances are the coming wave of Facebook millionaires have something more grand in mind. At least that's the thinking behind the so-called "Facebook effect"-- the anticipated demand for high-end housing following the company's May IPO. Since the beginning of the year, prices have climbed more than 10 percent in Palo Alto, Calif., where the company is headquartered.

But while prices have gone up, inventory has declined by a whopping 57 percent. Some brokers suggest that potential home sellers are holding onto their houses, waiting for the IPO to pop so that they can list for higher prices. The increased demand can also be attributed to non-Facebook buyers trying to get into the market before it gets even more crazy expensive. According to Altos Research, the median price for a single-family home in the neighborhood is just over $2 million.

But is this localized housing boom just the beginning of another bubble? Broker Michael Dreyfus warns that if Facebook's IPO doesn't go as well as hoped, the Palo Alto housing market can face "a great big crash." And fears were rekindled when Facebook reported that revenue fell between the fourth quarter of 2011 and the first of 2012.

Meanwhile, check out this gallery of some of the high-end Palo Alt homes where Facebook's newly rich might be living.

See also:
Home Sales See Best 1st Quarter in 5 Years, Realtors Report
Buying a Home Won't Get Much Cheaper

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