Willi Krauss, president-elect of Silicon Valley Association of Realtors, introduced Appleton-Young, whose slide show and statistics gave the audience a peek at what's in store for the coming year. Dennis Byron, of Byron and Associates and the chairman of the Los Gatos­Saratoga District of the local Realtors association, said Appleton-Young's forecast mirrors what other economists, as well as those who approach the market from an appraiser's viewpoint, are saying.

"We can expect a strong finish to this year. Inventory is low and the buyers are still out there with low interest rate loans in their pockets. As in former years, the market will slow its pace down while the public takes a break for the holidays," Byron said.

Many economists and appraisers believe the market will come back strong after the second week in January, and Byron said Appleton-Young echoes that sentiment.

"The coming year will mimic this year but at a slightly slower pace. From what I have heard from several economists, the market will heat up again to the pre­dot-com level in the years 2006 and 2007, with the market turning in 2008 or 2009," Byron said. "Historically this seems to be the case. Leslie indicated she believes the cooling off won't happen until 2012, but I think that may be a little optimistic. All agree we are in for a ride for the next couple of years."

The prediction from the California House Market Forecast for 2005 shows slightly higher interest rates that will approach 7 percent by the end of next year, which will affect the ability of families in California to become homeowners. In addition, the median home price in California is expected to increase about 15 percent, while sales are projected to decline slightly. The rising home prices and higher interest rates will translate into one of the lowest affordability percentages, perhaps an all-time low of 16 percent.

"We expect the economy in 2005 to generate modest growth in jobs both nationally and here in California, while productivity gains and competition will likely keep inflation in check next year," said Appleton-Young. "While the increase in interest rates will be enough to moderate the pace of homes sales in 2005, population and household growth will continue to put pressure on home prices, resulting in greater price appreciation in California compared with the nation."

Appleton-Young indicated the areas with the greatest potential for homes sales growth are in the Central Valley and in the Inland Empire region in Southern California, where home-building activity is booming. The San Francisco Bay Area housing market, which advanced at a more measured pace than other regions in the state this year, is likely to see less slowing in 2005 compared with the other areas of the state.

The California economy shows a slight decrease in the unemployment rate in 2005 and slight job growth, with the population expected to remain relatively stable. Median home prices have gone up from $372,720 in 2003 to $454,720 in 2004 to a projected $522,930 in 2005.

At the local level, Realtor John Leslie of Alain Pinel Realtors in Los Gatos also finds the market repeating last year's, with shrinking inventory and home buyers still ready to buy.

"The low interest rates are continuing to drive the homes sales and will to the end of the year. The Los Gatos and Saratoga markets have very little to offer under $1 million. Over $1 million to $1.3 million is pretty thin also. The number of homes over $1.3 to $3 million is mind-boggling. The sales are occurring at most price levels, but not as many as in the summer and spring," said Leslie, who indicated most agents expect to see 40 percent of these homes go off the market for the holidays and return in the spring.

Leslie notes that the most common characteristic of the high-end sellers continues to be a lack of urgency. "Many of the listings are listed and priced by sellers who don't have to sell. Their rationale is based on 'if I can get my price, I will sell.' This lack of motivation shows as these listings linger on the market for months. These sellers are very resistant to price reductions and prone to changing brokers to one who will agree with their fantasy pricing," he said.

Recently there have been more multiple offers on single-family homes and condos as well. Leslie believes it is due to a lack of inventory and worried buyers who are overbidding on well-priced homes.

"There are plenty of overpriced homes just sitting there, and disappointed sellers resist lowering their list price for weeks at a time. Even though prices have gone up nearly 20 percent since last year, these sellers believe they should get their price."