A Silicon Valley city was recently named the most expensive housing market in the nation, but local experts say many sellers are "chasing the market down" with homes priced too high at a time when buyers are skittish.

Coldwell Banker's 2002 annual Home Price Comparison Index (HPCI) says Palo Alto, CA, the birthplace of the Hewlett-Packard conglomerate and home of Stanford University, is the nation's most expensive housing market, with a whopping average price of $1,263,250. The most affordable town was Yankton, SD with an average of $101,062.

The HPCI is based on sold listings in typical, middle-management transferee neighborhoods in 317 U.S. markets and reflects the value of a 2,200 square foot home.

Coldwell's index says since last year, the national average home value rose 7 percent to $291,097 from $269,241 a year ago.

Seven of the nation's 10 most expensive markets are in California, the remaining three in New England. The Midwest yielded seven of the 10 most affordable markets, Coldwell reported.

Of the seven California cities, three, San Francisco, San Mateo and Palo Alto, are in the expensive and volatile San Francisco Bay area housing market, anchored to the south by Silicon Valley (Santa Clara County) where prices are beginning their seasonal tumble.

"Sellers should consider pricing their property very competitively to accelerate the sale. Otherwise, with only 28 percent of the homes (for sale) in Santa Clara County selling each month, the seller runs the risk of chasing the market down," said Richard Calhoun, broker owner of Creekside Realty in San Jose.

"It is likely a low price today will be above market value within a short period of time. At some point, the seller would be better off waiting for the market to improve. There is no indication that this time has arrived," added Calhoun, who is also a real estate statistician who publishes the Bay Area Real Estate Market Newsletter. The newsletter crunches sales statistics available from REInfo Link, the area's multiple listing service, which serves five area counties, including Santa Clara County.

Calhoun says closed sales of single-family homes in Santa Clara County yielded a median price of $564,000 in July, compared to $528,500 a year ago, but the new price is the second drop in two months.

"Although buyers should prepare now, they should consider delaying their actual purchase. Creekside Realty absolutely believes real estate is a great long-term investment. Given the choice between buying or not buying we would recommend buying. But given some flexibility we would likely recommend accelerating or delaying the purchase and/or sale depending on the current market conditions," said Calhoun.

Right now indicators say buyers may have some time to dicker. Current slowing trends are typical for this time of year, but the rate of the current slow down is greater than it's been in the past three years -- with the exception of one week prior to July 4.

"This one-week improvement was likely a result of the calendar, not an actual improvement in the market fundamentals. It appears that the real estate market has been cooling ever since April 19th. This can be seen in higher inventory levels, lower number of sales, and longer marketing time. All three of these factors indicate a market that is slowing," Calhoun said.

Even with the seasonal slowdown, the Silicon Valley market continues to perform better than it did a year ago when homes remained on the market for more than 60 days. Now they are sold in an average 41 days, according to the association.

"The current housing market provides buyers with a broader inventory to choose from. They can go to 'the shelf' and see that there are more choices available and thus be more choosy than in the recent past," said Steve Hanleigh, president of the Santa Clara County Association of Realtors.

"This gives them more bargaining power. I would recommend that serious sellers price their homes competitively when the home first goes on the market," Hanleigh added.

Published: August 28, 2002

Use of this article without permission is a violation of federal copyright laws.