Even Google's stock-option holders may not be able to afford Northern California's luxury homes if they can't exercise those options soon enough.

As low mortgage rates and pent-up demand jump started much of the Northern California housing market this spring, high-end home sales and price appreciation were taking off too.

After taking a year off, Northern California's high-end home market is off and running again nearly matching what was already happening in 2003 in the southern end of the state.

According to First Republic Bank's "Prestige Home Index," luxury home values in the San Francisco Bay Area, along with Los Angeles, San Diego set new highs and returned to double-digit year-to-year growth in the second quarter of 2004.

The index, which has tracked luxury homes since 1985, measures changes in homes valued at more than $1 million in three California urban markets -- two in the south and one in the north.

Conducted by automated property valuation services firm Case Shiller Weiss, the survey found that San Francisco Bay Area luxury-home values climbed 16.4 percent, year-over-year by the second quarter this year and 7.2 percent from the first to second quarter of 2004. During all of 2003 values rose only 0.3 percent and generated "bargains" that likely generated some of the demand contributing to the current price boom. The Northern market, however, has remained the price leader with an average luxury home value at a record $2.54 million. For 2003, the average price was $2.24 million.

Meanwhile, southern California's high-end market remained strong. San Diego's values climbed 18.8 percent year-over-year by the second quarter this year, 5.6 percent from the first to second quarter this year and 8.7 percent last year. The average price in the second quarter this year was $1.73 million.

Los Angeles's values rose 17.5 percent year-over-year and 3.7 percent from the first quarter after rising 14.9 percent in 2003. The average price in the second quarter this year was $1.72 million in the Los Angeles region.

Market analysts and media reports in Northern California indicated Google.com going public and offering stock options to its employees would generate a batch of overnight millionaires cum high-end home buyers who would quickly push up prices, especially in the high-end market.

Apparently the market isn't waiting. Exercising Google stock options is still months away.

Experts said the upward pressure on prices was instead the result of immigrant entrepreneurs, an improved financial sector in San Francisco and seasonal buying.

"People who have made fortunes elsewhere want to be here. It is really driving the market," Steven Mavromihalis of Pacific Union Real Estate Group in San Francisco, told the bank.

Still, the high-end market is likely to follow the seasonal pattern already exhibited by the more affordable sector which is enjoying a better 2004 than 2003, when it comes to increasing prices.

"Since a pretty heady first half of the year, we've seen a little pull back. That is partly seasonal. The fall market is going to set the barometer for the remainder of the year, but regardless of what happens, we will see higher sale numbers and higher prices for all of 2004," said Tom LeMieux of Coldwell Banker in Menlo Park.

Southern California is feeling many of the same pressures as local buyers increasingly compete with foreign buyers immigrating into the region, according to Michele Hall of Coldwell Banker in Brentwood.

Because home price fires have been burning longer in the southern end of the state, there is some concern they are about to burn out. Some potential sellers have decided to pull back to the perimeter and watch the market smolder -- for now.

"We have an increasing inventory of homes on the market. There is a perception that we may be at the top of the market," said Maxine Golden of RE/MAX in Newport Beach.

Published: September 3, 2004

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A journalist for 35-years, Broderick Perkins parlayed an old-school daily newspaper career into a digital news service offering editorial content and consulting services. Perkins' San Jose, CA-based DeadlineNews Group includes the flagship news site, DeadlineNews.Com, offering real estate, personal finance and consumer journalism, and a backshop, the Deadline Newsroom.