It's tough to tell if Silicon Valley's housing market is a trick or a treat.

Prices are a treat compared to earlier this year, but lower prices and cheap interest rates bring on bidding wars that trick buyers into paying too much.

"If there are more than five bidders and you are the winning party you could get buyer's remorse because you over bid," said Carl San Miguel, broker owner of Highland Properties in Campbell.

He and other real estate agents are advising buyers to cash in now on cheaper prices and interest rates that are lower than forecasters projected, but not to get spooked into paying more than a home is worth.

The median price for single-family detached homes rose $5,000 in September to $630,000 but remained off the year's high of $642,000 reached in June. Last year at this time the median price was $555,000 according to Creekside Realty broker/owner Richard Calhoun's Bay Area Real Estate Market Newsletter. Condo prices fell from $405,000 to $395,000 countywide.

Yielding to upward August-to-September median price movements in single-family detached homes were the cities of Los Gatos, Santa Clara, San Jose and the neighborhoods of Rose Garden, Willow Glen and Almaden Valley.

Prices fell in the cities of Campbell, Cupertino, Saratoga and Sunnyvale.

San Jose independent broker Janet Houde said market conditions continued to prove favorable for buyers. The downward trend in prices since the end of spring is a seasonal norm, but interest rates remaining below 6 percent was unexpected.

Mortgage experts earlier this year called for rates higher than 6.75 percent by now, but Freddie Mac's weekly average for fixed-rate mortgages ending October 14 was more than a full percentage point off the forecast. In the West the average fixed rate was 5.72 percent for a 30-year, conforming loan.

Experts are sticking to forecasts of eventually higher rates as the year progresses with jumps expected after the elections and in anticipation of the Federal Reserve's next benchmark interest rate meeting expected in early November.

"Once the interest rates jump toward 6 percent you'll see a frenzy of buyers who are now on the fence waiting for whatever," said San Miguel.

Higher rates will exacerbate home prices expected to rise after the holidays. The California Association of Realtors recently forecast home price increases statewide of 15 percent in 2005.

"Interest rates are still good but will creep up later than expected. If you are going to get any kind of good deal you'd better be out there before the end of the year," said Houde, who is also president of the Santa Clara County Association of Realtors.

Calhoun says before the median price rises it could fall this year to as low as $610,000 as shoppers break to enjoy the holidays.

"October will be about $625,000 to $635,000. I then expect 2005 to see some significant price increases next year. The increase in September could be a positive bounce or it could be just noise. It is likely a combination of both," Calhoun said.

Most competition for buyers is in the low-end market with first-time buyers and move-up buyers vying for homes among reduced inventories. The single-family home supply fell from 2,912 in August to 2,680 in September, Calhoun said. The number of condos for sale also fell from 860 to 747. A year ago there were a total of 5,192 homes for sale, nearly 2,000 more.

Silicon Valley's buyers also see home purchases as solid investments. Since March of 1999 when the Dow Jones Industrial Average first reached 10,000, it's been stuck rising and falling around that mark. The Dow Jones Industrial Average was 9897.17 on October 18. Meanwhile, during the same period the median price of single-family homes has risen more than $150,000.

"Driving the market is lots of demand. Basically the demand is greater than the supply," said Calhoun.

The imbalance continues to spawn multiple-offer activity. San Miguel says buyers must approach cautiously.

"If I hear there are more than five offers I would advise buyers it is not going to be a pretty picture. If you are the winning party it could be because you over bid," he said.

Published: October 20, 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.