Condo/town home ownership can also be a good investment for move-up buyers. The condo market in Silicon Valley is very hot due to low inventory and the affordability factor. It's also a good choice for those who want a certain kind of lifestyle.

Realtor Kathy Stakey of Coldwell Banker in Saratoga, who specializes in the condo/townhouse market, said the demand is always there. "Condo or townhouse living is a lifestyle, it is also an opportunity to begin your real estate investment or enjoy home ownership. At this moment there are very few properties on the market in this category," she said.

Stakey has clients who come to her specifically to ask her to find someone who would be willing to sell a condo or townhouse to them and is presently searching for a condo/townhouse for one of her clients. "In addition to our overall inventory being low, I also believe those who currently enjoy ownership do not want to give up this fabulous lifestyle," Stakey said.

With a goal of moving up or using the starter home as an investment, a condo is a good choice for many people. Timing can be an issue, and deciding when to make the step up can be difficult, said Realtor John Leslie of Alain Pinel Realtors in Los Gatos.

He finds the typical condo buyer is a first-time buyer with limited funds to put down and an income that hinders the purchase of a single-family home. First-time homebuyers are usually motivated by making enough income to qualify for a purchase loan and because they are tired of paying so much income tax. Many first-time buyers plan to buy and hold property until it appreciates and their income increases.

"The step up for many owners is to sell their condo and move into a larger home or single-family residence. The trick, of course, is determining whether to hold and rent the condo, or sell it and buy up," Leslie said. "We, as Realtors, have to work the numbers for clients to help with that decision. Condo sales fluctuate throughout the year based on demand. Currently, the condo and town home inventory is very low, way below normal."

Leslie said the condo market in Los Gatos is very limited due to only a few complexes in the community. There are more town homes than condominiums due to consumers' demand. Many condo buyers are waiting for more units to become available for purchase.

"Developers built what consumers would pay for, and that was town homes. The condo complexes here are also now more than 30 years of age, and some need more upgrading that necessitates higher homeowner dues to maintain their value," Leslie said.

One of the problem areas with age is that some of the complexes have what Leslie calls "archaic heat pump systems" that cost enormous amounts of money to maintain. "Scrapping these obsolete systems and installing forced-air heating systems in each unit is also costly initially, but far more efficient and valuable upon resale. Nevertheless, the condo complexes in Los Gatos are maintaining their value because they are the most affordable housing in this affluent area," he said.

Another category of condo buyers are the seniors who have decided to move out of the single family home and move into a smaller home, said Leslie. "Empty nesters and retirees are common condo buyers. They like condo complexes that have people to maintain the buildings and grounds. Taking care of a small patio or some potted plants really appeals to them," he said.

In nearby Cupertino, the sales are very good in the condo market due to low interest rates and inventory, said broker/owner Francine Nelson of Realty World.

"I just listed two condos less than a week ago and my phone is ringing constantly, especially in Cupertino due to the low inventory. The condos that do come on the market sell very quickly, some with multiple offers. Condos are still at an entry-level price, so they make a great first home for singles or families," Nelson said.

Realtor Arvada Darnell with Coldwell Banker in Palo Alto, who also has a number of condo listings and sales, believes this is a very hot segment of the market right now and has been for about four months. She also sees the typical buyer as a first-time buyer, with those selling condos as usually moving up.

"I firmly believe that buying a condo/townhouse is better than renting. Just ask the folks who are selling their condos now and are able to move into a larger condo or a single-family home," Darnell said. "We are seeing multiple offers in more than 50 percent of the sales and, just like homes, they are selling for a good deal over the asking price. Condos that would languish in many markets are selling like pancakes now."

Darnell believes one of the best things about owning a condo is that when it comes time to move up or down, the condo/town home makes a nice investment if an owner can hang on to it and rent it. Another perk is that association fees become tax deductible at that point.

"If you decide to sell your condo or town home, you have to play the market a bit since condo sales are always more brisk when the single-family housing market has low inventory and high demand. There will always be a market for real estate at the entry level. If an association is managed well, the reserves are kept at a healthy level and the property is well maintained, a condo or town home will remain a sound investment," Darnell said.