Silicon Valley homes gain equity while they are still in escrow as low inventories and buyer demand erase home price records weeks after they are recorded.

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 compilation of statistics from

RE InfoLink, the area's MLS.

Providing 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.

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.

It's not easy to afford a home in Silicon Valley, but those who do manage to purchase get a benefit that's 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," said Charles Culli, a real estate agent with Realty World Executive Advantage in San Jose.

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, the hot residential housing market shakes out like one without 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, are all inter-related," says Calhoun.

Real estate writer Broderick Perkins, executive editor of San Jose-based DeadlineNews.Com, writes regularly for
Los Gatos Weekly-Times.