Low interest rate-driven demand, move-up buyers—often baby boomers—and persistent short supplies pushed home sales to a new record while boosting home prices 16 percent in Silicon Valley in 2004.

However, a cooling trend already apparent in the New Year reveals 2005 isn't likely to be a repeat of 2004, experts say—and hope.

Unfazed by home price increases of tens of thousands of dollars some months, home buyers in Santa Clara County purchased a record 15,710 single-family detached homes in 2004, beating the last annual record of 13,753 sales set during the dot-com heyday in 1999.

As existing home sales increased, inventories (including condos and single-family detached homes) fell from 2,966 homes in December 2003 to 1,823 in December 2004, according to San Jose-based Creekside Realty owner/broker Richard Calhoun's Bay Area Real Estate Market Newsletter.

Heavy buying in a short-supply market pushed median prices on closed sales of single-family detached homes to a record $661,000 in December 2004, up $94,000 from $567,000 in December 2003.

Median prices countywide for condos likewise rose approximately 16 percent or $60,000 from $369,000 to $429,000 during the same period, according to Calhoun.

From December 2003 to December 2004, prices on single-family detached homes rose from $635,000 to $720,000 in Campbell; $850,000 to $909,950 in Cupertino; $1.03 million to $1.1 million in Los Gatos; $1.05 million to $1.42 million in Saratoga; $515,000 to $600,000 in Santa Clara; $529,000 to $625,000 in San Jose; $639,000 to $750,000 in Sunnyvale; $607,000 to $659,900 in the Rose Garden; $609,000 to $740,000 in Willow Glen; and $728,000 to $905,000 in Almaden Valley, Calhoun reported.

"I don't like to see huge increases in appreciation," said Jim Myrick, 2005 president of the Santa Clara County Association of Realtors and broker/owner of Realty World-Realty Solutions in San Jose. "It's like a sprint. Whenever you sprint you have to stop and take a breath. I prefer a marathon race."

While the 16-percent gain is nearly double the average increase in median home prices when year-to-year monthly medians back to 1985 are compared, it's far off the record year-to-year monthly gain of 134 percent which occurred from May 1999 to May 2000, said Calhoun, who analyzes data from Campbell-based RE InfoLink, the area's multiple listing service.

Also, Silicon Valley's current home sales have slowed down to 109 percent of the 10-year average compared to 123 percent a year ago.

"It's off by 14 percentage points and that's fairly significant. The market is a seller's market, but with the drop in sales and an increase in inventory, if both continue, you go from a seller's market into a balanced market and into a buyer's market, which is probably good for everybody," Calhoun said.

The profile of Silicon Valley's home buyer has changed dramatically over the last three boom markets: first-time home buyers ruled during the late 1980s; suddenly-rich from the "wealth effect" of the technology boom era, dot-com workers bid up the price of homes in the 1990s; and now move-up buyers, often baby boomers, are cashing in.

"Right now it's the move-up buyers and part of the reason for that is that the top end went way up during the time when funny money was driving the market, but that came crashing down. People can move up now and get much more for the money," Calhoun said.

Myrick, at 40, is on the trailing end of the baby boomer generation and says he is in the market for his last move-up home to house his expanded family of four. He says his timing has nothing to do with what the market is doing, but is based on his family's needs. That's how all buyers should choose a time to buy.

"I never say wait. I didn't get up one day and say 'Look what's happening to the market.' I had my first child in a small house and then when we had our second child, it didn't matter what the market was doing. We just needed a bigger house," Myrick said.

Myrick, also owner of Everest Funding in San Jose, says a myriad of mortgage programs and low rates continue to make financing easy and offset the high cost of housing.

"There are many interest-only and attractive adjustable rate mortgages (ARMs) that let people leverage more house and control ownership in a property for a lot less per month," he said.

Real estate writer Broderick Perkins, executive editor of San Jose-based DeadlineNews.Com, writes regularly for this newspaper.