As she unloaded groceries in the driveway of her Palo Alto home, Lisen Stromberg was approached by a real estate broker who asked whether she'd be willing to sell her five-bedroom house to a senior Facebook executive.
"There is a house down the street selling for $6.3 million. I'll sell you mine for an even $6 million," she replied.
Her tongue-in-cheek asking price was about twice what her house is worth, but the broker didn't miss a beat and said he would speak with his client.
"When I told my husband, he laughed and said: 'Here we go again,'" Stromberg said.
The rest of the country may be struggling to recover from a crippling recession, but it's boom time in Silicon Valley, and the hot housing market is just one sign of that.
Traffic chokes the 47-mile stretch of Highway 101 from San Francisco to San Jose. Dueling billboards on the side of the highway compete for engineers who, with bidding wars for their skills, have seen their pay and stock options soar.
New Prius hybrids purr into employee parking lots, and a Tesla roadster and even a Lamborghini have already been spotted at LinkedIn Corp., which went public in May, turning nearly every pre-IPO employee into a paper millionaire.
Office rents have shot up as much as 35% in some prime locations. Hotel occupancy rates have topped 80%, sending room rates higher. Business is brisk at the Menlo Park branch of upscale grocery chain Draeger's, which takes pride in stocking its shelves with the kind of duck foie gras and other delicacies found at Harrods in London or Fauchon in Paris. Hot start-ups such as Dropbox in San Francisco, which helps its 25 million users store and share photos, videos and documents, are negotiating funding rounds that would make them worth billions. Even the rooftop parties popular during the last major tech boom are making a comeback.
The rush of innovation in Silicon Valley has triggered another tidal wave of financial speculation. Investors are piling into technology initial public offerings and drooling over the prospect of an IPO from Facebook Inc. as early as next year at a valuation that could top $100 billion.
It's not just the return of the big Internet IPO after a long drought. Technology giants such as Google Inc. and Microsoft Corp. are buying young upstarts in a resurgence of top-dollar acquisitions that shower riches on entrepreneurs and their investors.
Venture capitalists poured more than $2.3 billion into Bay Area start-ups in the first quarter alone, a 53% increase from a year ago. Private equity firms, investment banks and mutual funds also have leaped into the mix, hunting for growth investments in a sluggish market. And tech workers and investors are selling shares in Facebook and other private companies to professional investors at ever higher prices, driving up valuations and creating more disposable income.
Some say all of this feverish speculation in Silicon Valley — as much known for its busts as its booms — is giving them déjà vu of the dot-com collapse a decade ago when Internet highfliers crashed as quickly as they soared in value.
Take Twitter Inc., which in December raised $200 million in a round of funding that valued the company at $3.7 billion. It's now raising $400 million in a round of funding that values the company at $8 billion, which some analysts estimate is an astounding 40 times sales.
Others dismiss talk of another technology bubble. They argue that more than 2 billion people are now plugged into the Internet through high-speed connections, creating vast opportunities for companies that are lining up millions of users and growing sales, even respectable profits. This boom, they say, is being driven not by greedy investors pumping up shares of dot-coms to irrational levels on public markets, but by private investors who are battling for stakes in hot start-ups like Facebook that could turn out to be the next Google. But the question remains: Are investors also recklessly inflating the values of less promising ventures?
"There is frothy behavior, but I don't think it's necessarily totally irrational," said David Rusenko, chief executive of Weebly.com, a San Francisco company that helps people build websites. "These are all wealthy private individuals who understand the gambles they are making. It's not like in the dot-com days when grandma was placing bets on IPOs."
The conventional wisdom is that the tech boom could last into 2013. Even though it has been limited to hot tech sectors such as social media and mobile devices and software, it's a rare bright spot for California, which still suffers from stubbornly high unemployment and foreclosures. Unemployment in Santa Clara County — home of Silicon Valley — stands at 9.7%, well below the state average of 11.4%.
In the neighborhoods most favored by engineers, entrepreneurs and investors, home values are rising sharply. Palo Alto saw an 11% increase in the median price of homes in June from a year earlier, to $1.58 million, according to real estate research firm DataQuick.
The buying spree was kicked off by Facebook's 27-year-old chief executive, Mark Zuckerberg, who recently paid $7 million for a 5,600-square-foot home with a saltwater pool. That was small change compared with the $100 million Russian billionaire Internet investor Yuri Milner paid for a French chateau-style estate in Los Altos Hills, one of the highest prices paid for a single-family home in the United States.
Sid Viswanathan, 27, sold his business card reading application CardMunch to LinkedIn Corp. in January. After the company's IPO in May, Viswanathan, whose most expensive purchase had been a personal computer, walked through a 1,500-square foot, three-bedroom house in Mountain View on a Friday and made an offer two hours later.
Viswanathan, who was paying $400 a month to share a two-bedroom apartment he rented with two others, paid $700,000 for the house a mile and a half from downtown Mountain View and an eight-minute drive from LinkedIn. With multiple offers on many houses, he said he knew he had to move fast.
Tech workers moving to Silicon Valley are driving up rents too. A four-bedroom rental in Menlo Park listed for $9,500 a month got 20 inquiries and was rented by a tech executive.
Steve Niethammer, an agent with Zane MacGregor & Co., said he was already seeing a housing crunch in Palo Alto and other communities that are home to top schools and fast-growing companies.
"It's probably the only place in the country, if not the world, that has heated up this quickly," Niethammer said. "I have been in the business for 12 years and I have never seen anything like it."
Stromberg has seen this before. After she and her husband built their home in 1999 at the height of the dot-com boom, real estate brokers would appear on their doorstep every week asking whether they would consider selling to executives from EBay, Cisco, Yahoo or other tech companies.
"Invariably I would give them an outrageous price and they would laugh and walk away," Stromberg recalled. "What's different this time is that he didn't laugh and walk away. He took me seriously."
Entrepreneur Larry Chiang measures the Silicon Valley economy with a "walking index," the length of time it takes him to stroll the two-tenths of a mile from his apartment to his office on University Avenue, downtown Palo Alto's crowded main drag.
The chief executive of Duck9, a credit score preparation program for college students, says he stops to talk to so many people these days that he's averaging 25 minutes, far short of his record of more than an hour at the height of the dot-com bubble but up from the 10 minutes it took him after it collapsed.
With companies forming and expanding at a record pace, office space is becoming increasingly hard to find in desirable spots such as Palo Alto, where rents have jumped while vacancies have been cut in half, according to Colin Yasukochi, Pacific Northwest director of research for Jones Lang LaSalle Inc.
Facebook has leased a new 57-acre campus in Menlo Park that could house 9,400 workers by 2016. Apple plans to build a spaceship-shaped building on a new campus in Cupertino that could accommodate as many as 12,000. In San Francisco, Twitter is moving into a nearly vacant 805,000-square-foot building and plans to increase its workforce to as many as 3,000 by 2013 from about 400 today.
Extreme demand is straining the supply of qualified engineers and designers, creating what Netscape founder and Silicon Valley venture capitalist Marc Andreessen calls the most competitive market for talent he has ever seen.
Companies are offering six-figure salaries to entry-level engineers and multimillion-dollar pay packages to keep their star engineers from being poached. And they are resorting to aggressive tactics such as "exploding offers" that expire in days or even hours.
Recruiters are also a hot commodity at Silicon Valley companies. The 300-person real estate search engine Trulia, which doubled its workforce in the first half of this year and is looking to hire an additional 100 workers by year's end, employs five full-time recruiters. This time last year it employed none.
Trulia is also dangling incentives to employees who, if they refer new hires to the company, can win a weekend in the wine country, an iPad and a $10,000 bonus. Anyone who refers a software engineer who is hired at DNAnexus in Palo Alto in July gets $20,000 and his or her full genome sequenced at no charge.
Tech companies that for years have offered sweet perks such as free meals and shuttle buses are competing to come up with even more innovative incentives.
At Zynga, whose IPO is expected to value the San Francisco social gaming company at $20 billion or more, new recruits get free haircuts and iPads. At Square, a mobile payments start-up run by Twitter cofounder Jack Dorsey, employees are fed three meals a day and snacks and attend Square University to learn sign language or to shoot billiards. Square also offers the ultimate job perk: unlimited time off.