Silicon Valley's new home price records go in the books with erasable ink as low inventories and buyer demand quickly wipe out old price peaks.

The housing shortage is the primary reason the median home price in the region broke a two-month-old record in May, rising to a median of $635,000 on closed sales for single-family detached homes. Condo and townhome prices also peaked at a $395,000 median, beating the previous $385,000 record in April, according to Creekside Realty broker-owner Richard Calhoun's Bay Area Real Estate Market Newsletter, a tabulation of statistics from RE InfoLink, the area's MLS.

Adding perspective, Janet Houde, president of the Santa Clara County Association of Realtors says there are some price drops in segments of the relatively hot market.

"It's important to remember that where a home sits in the market matters. For instance, the bottom 10 percent of the market is very active, sales volume is heavy and prices are going up rapidly. The top 10 percent of the market is actually dropping slightly. Sales volume is improved over a year ago, but still light and prices are coming down a bit," said Houde, an independent broker in San Jose.

But Silicon Valley isn't an island in Northern California. Along with Santa Clara County (Silicon Valley's center) single-family home price records also fell in San Mateo County to the north and the seaside counties of Santa Cruz and Monterey to the south. The condo price record also fell in San Mateo County.

Everywhere in the region the story is pretty much the same -- too few homes to meet the demand. That could change -- slowly -- as more sellers find their price point.

"Overall inventory continues to rise, which is normal for this time of year. Higher inventories should cause the market to balance out a bit over the summer," said Houde.

With prices among the highest in the nation, it's not easy to buy a home in Silicon Valley, but those who do manage to purchase get a benefit that's also unique to the market -- growing value while the home is still in escrow.

"Here's the picture. You pay top dollar for a home, it's in escrow for 30 days, you've just had 30 days of appreciation before you even own the home. We expect the gain in appreciation this year to be double-digits," Charles Culli, a real estate agent with Realty World Executive Advantage in San Jose, reported to Realty Times' Market Conditions service.

Also reporting to the service, Mary Pope-Handy, with Intero Real Estate Services in Los Gatos says even with the higher prices, buyers aren't feeling the pressure they did months ago when rising interest rates forced fence-sitters to get serious.

After fixed-rate mortgages for 30-year conforming loans bottomed at 5.38 percent in mid-March, interest rates rose for two months before topping out at 6.34 percent in mid-May. Since then, they've been up and down, week after week, ending up at 6.28 percent on June 3, according to Freddie Mac's Weekly Mortgage Market Survey.

"(Los Gatos area) Entry level homes ($550,000 - $650,000) in good locations that are nicely presented/staged and well-priced and marketed are flying off the market. Homes with 'issues' such as freeway walls, high voltage lines, stores too close or busy streets are lingering on the market, but are still selling. There are still multiple offers on the better homes and values, but not as many as a couple of months ago," Pope-Handy said.

Real estate agents are cautioning sellers not to wait for more price peaks because they have already lost the advantage of widespread multiple offers and more buyers could pull out.

"The slight rise in interest rates has had a calming effect on the hysteria in buyers," said Linda C. Boyd, an agent with Realty World-John V. Pinto & Associates, Inc. in San Jose.

"My buyers seem to be more willing to wait to find the right home as opposed to bidding thousands and thousands over list to get something they don't want anyway. Sellers should not wait until the end of summer to see how high prices will go. If they wait that long, folks who had hoped to be in a new home by the time school starts will just dig in their heels and wait another year to buy," Boyd said.

Still, Silicon Valley's market shakes out like a market that has no limits.

"Yes the market has limits, but the limit is not a fixed line. The limit increases with increased income, increases with decreased interest rates, increases with increased demand, increases with decreased supply. Of these and other factors, all are inter-related," says Calhoun.

Published: June 8, 2004

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Broderick Perkins parlayed a career in old-school journalism into a contemporary digital news service that really hits home. The award-winning consumer journalist, originally from Wilmington, DE, is founder, publisher and executive editor of the bootstrap DeadlineNews Group, a Silicon Valley-based editorial content and consulting service specializing in residential real estate, consumer news and related editorial consulting services. The DeadlineNews Group includes the website, DeadlineNews.com, offering real estate editorial content and consulting services, and its back shop, the Deadline Newsroom, an open house on news that really hits home. Perkins obtained his formal journalism education from University of Delaware and a journalism boot camp, the Institute of Journalism Education at the University of California-Berkeley. He went on to 20 years of service as a daily newspaper journalist at the Wilmington, DE News Journal and San Jose, CA Mercury News. Perkins covered housing on the San Jose Mercury News reporting team which earned a General News Reporting Pulitzer Prize in 1989 for coverage of the Loma Prieta earthquake. He has also produced real estate, consumer and small business content for the Wall Street Journal, Los Angeles Times, RealtyTimes.com, Nolo.com, Better Homes and Gardens, the National Association of Realtors, Homestore/Move and Intuit/Quicken among more than three dozen publications. In addition to managing the DeadlineNews Group, Perkins most recently served as chief editorial consultant for Nolo's Essential Guide To Buying Your First Home, Nolo, and writes real estate television scripts for RealtyTimes.com.