"The condominium market is driven by the affordability price point of single-family homes," said Dante Drummond, a Realtor with Coldwell Banker in Palo Alto. "When a condominium or town home is priced at the same price point as a single-family home, the buyer will generally pick the single-family home over the condominium or town home due to a high percentage of the value of the single-family home being the land value."

Drummond believes that as the prices of single-family homes go up, the market turns to the affordability of condominiums. "While some people buy the condominium for the easy lifestyle, in a down market they can become more of a liability," said Drummond.

That little piece of land can turn out to be a deciding factor when considering the purchase of a condominium. There are usually three separate components in condo ownership: the unit itself; the proportionate interest in the common elements of the development such as the exterior building walls, roofs and mechanical elements not in the unit; and sometimes the easements that go with the unit.

Condos differ from town homes in several ways.

"A town home is considered a style more like a single-family residence, since most townhouse developments have the land beneath the town home as part of the ownership," said David Zigal, a Realtor in San Mateo. "There are condominiums that are styled as a town home, but the owners of these units do not own the land."

Zigal said town homes have many positive elements. "Current pricing meets the current market demand. You can lock your door and travel, and the exterior is maintained, giving you more carefree living. You can also share in the amenities, such as pools, tennis courts, clubhouses, etc. The sales for this type of property seem to be very much in demand since they relate closely to single-family homes."

Condominiums, on the other hand, may offer some of the same amenities, but there are some drawbacks. "With condominiums, the owner owns only the airspace between the walls. Market demand for these types of units tend to be the older, retiring buyers who need to have one floor (town homes are typically two or more floors). There is less individual maintenance required. These types of units are in less demand than single-family homes or town homes," Zigal said.

Last year condominium sales surged nationwide, and National Association of Realtors chief economist David Lereah said the condo market has outperformed the single-family housing market in some cases.

"Although condo sales account for only 12.9 percent of total home sales in 2002, growth in this sector has been stronger and more consistent than growth in the single-family housing market," Lereah said. "This is the seventh consecutive annual record for condo sales, and the rate of increase is double the 5.0 percent rise we saw in existing single-family sales in 2002."

National Association of Realtors President Cathy Whatley said there was a common denominator behind both increases. "The rising tide that is floating all boats in the housing market is the historically affordable level of mortgage interest rates. In addition, the condo market is flourishing because both ends of the housing market—first-time buyers and retirees—are drawn by a combination of lifestyle and affordability considerations."

The trend seems to show an increase in the rate of condo prices. The typical condo price has been rising much faster than the typical single-family home price," said Whatley. "In the fourth quarter, the median existing condo/co-op price was $147,000, which is 15.5 percent higher than a year ago." The median is the midpoint, which is a typical market price where half of the units sold for more and half sold for less. By comparison, the typical single-family home cost $162,600 in the fourth quarter, which was 9.2 percent higher than a year earlier.

For all of 2002, the median existing condo price was $137,100, up 11.4 percent from a median of $123,200 in 2001. At the same time, the typical single-family resale price rose 7.1 percent to $158,300.

Lereah said there are several factors in the median condo price rising faster than historic norms. "First, the record demand has been placing pressure on condo prices. In addition, there is a short supply of available units, notably in the West and South," he said. "We've also seen a growing popularity of upper-end units that appeal to retiring baby boomers, and more luxury units have been built in recent years. The higher mix of more expensive units being sold accounts for some of the rise in the median condo price."

There's a big difference when comparing national median prices to Silicon Valley prices. In Los Gatos, the average median price of a condominium in March was $530,000, while in Saratoga the median price was $480,000. Those prices compare with the average median-priced single family home in Los Gatos at $735,500 and Saratoga at $1,325,000.