The economic market that put the virtual in virtual reality is about to get a dose of virtual realty in its housing market.

Silicon Valley's home prices and sales have been on a tear since December, but the conditions that fueled the run up are just about out of steam -- if only temporarily -- and that's good news for buyers, currently enjoying continued record low mortgage rates.

"The record volume of initiated sales experienced earlier this year has now clearly passed. This can be seen in higher inventory levels, lower number of sales, and longer marketing times," said Richard Calhoun, statistician and author of the Bay Area Real Estate Market Newsletter, a statistical report for five counties in the southern San Francisco Bay Area.

"Although these trends are typical at this time of the year, the rate of change is more significant than any of the last three years. If the traditional annual cycle continues, there will be downward pressure on prices for the next several months," said Calhoun, also owner-broker of Creekside Realty in San Jose.

After a 2001 in the doldrums, median prices of single-family homes in closed sales zoomed from $493,500 in January to an all-time record of $578,000 in May. The last price record was in January 2001 when the median hit $577,500, Calhoun says.

Meanwhile, single family home sales began the year at 1,295 rose to 1,582 in March, but dropped in April and May to 1,455 and 1,309 respectively.

Condos have taken a similar rise-and-fall path.

The market about face is beginning to give buyers the negotiating edge again especially with sellers who haven't gotten the news.

"What we're seeing now are asking prices getting way ahead of reality. This is normal when a market changes abruptly. Inventory is increasing and that will help put a damper on price increases," said Rick Campbell of Real Estate Reports, a Palm Desert, CA-based online compilation of statistical reports on markets throughout California.

Campbell says after some frenzy in the market earlier this year, buyers have turned more selective and that should put the lid on rising prices.

"With increasing inventory, prices today are holding or being negotiated again for the first time in many months. This is a normal trend when buyer's have access to more choices and homes stay on the market longer that "50 minutes" as they do in a strong seller's market of reduced inventory," Realty World Executive Advantage agent Dawn O'Neal reported to the Realty Times Market Conditions Report-San Jose.

Calhoun says the underlying reasons for the market shift go back as far as Sept. 11 2001 which caused shockwaves that still reverberate through real estate markets.

"Initially after September 11, people went into shock. Then people entered the recovery period and wanted to increase their feeling of security. This increased the desire of home ownership and some buyers accelerated their decision," said Calhoun.

Calhoun also said, until recently, "normal buyers, buyers who delayed their purchase and buyers who accelerated their purchase were all in the market at the same time. Sellers who elected to delay their move, reduced the inventory. Both factors worked to increase demand for the available housing. This would explain why there were record sales levels with a weakened economy. If some buyers did accelerate their purchase as the explanation suggests, the 2002 slowdown could be more significant than normal, which appears to be the case, but the 2002 slowdown shouldn't be as significant as 2001."

That means buyers looking for bargains had better get looking. Silicon Valley's unpredictable market could change in an instant -- in the other direction -- just as it's changing now.

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Published: June 27, 2002

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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.