"The market always seems to pick up the first part of the year. I think it's partly because people are generally more optimistic," said Realtor John Ewell with Alain Pinel Realtors in Los Gatos. "Traffic in my open houses has picked up tremendously in the past few weeks. Buyers and sellers are more likely to make a change at the first of the year, before school starts and during holiday periods."

Ewell said the state of the economy and the fact that interest rates are at an all-time low enable buyers to move into a home that might normally be out of reach for them.

"I recommend my buyers not pay much attention to the list price as I'm always able to negotiate a better price. Most people will not put in an offer on the home that they really like because they think it's out of reach, but they are surprised when they see what the home sold for with the help of a good agent with strong negotiating skills. You never know until you try," Ewell said.

With buyers out in force, Ewell's outlook for the year is good. "Compared to last year, I'm seeing more open house traffic and more Realtor showings through my listings. It's still a buyer's market, and the high-end homes are still a little slow to sell. Sellers want top dollar for their homes but need to be careful about overpricing."

Ewell said it is critical to monitor the traffic and get feedback from the agents that show the home. "If your real estate agent is doing open houses, advertisements, virtual tours, etc., and you don't receive showings or offers within the first 30 days, the list price is probably too high."

Judy Tucker, a real estate broker associate with Windermere Silicon Valley Properties in Saratoga, thinks the market is slowing down a little due to concerns about layoffs, war and the state budget woes. However, she also sees busy open houses and well-priced homes that are tending to sell within a month, especially those under $900,000.

"Many people want to make moves but are staying put at the moment. However, Americans have little patience and seem to adjust to everything quickly, so I don't anticipate this staying status quo too long. This is perhaps evidenced by the fact that December's sales numbers and prices were up from both the previous month and the previous year and the days the inventory was on the market was down. Many first-time buyers in expensive rentals are moving into home ownership."

Realtor Tom Martin of Campi Properties in Los Altos believes the market will react much the same as it did in the first half of last year. "During 2001 we saw prices fall as a result of the declining economy as well as the disaster of Sept. 11. By the end of 2001 sellers had either dropped their prices low enough to sell their homes or took their homes off the market. Consequently, we moved into 2002 with relatively low asking prices (as compared to 2000), low interest rates, buyers that were anticipating an economic recovery, and a fairly low inventory of homes."

Martin said the result was multiple offers and escalating prices during the first half of last year for homes priced below $1.5 million where buyers depended on large mortgages and minimum cash down. He views that data as looking very similar for 2003.

"Given that inventory is low, interest rates are just as low, or lower, than last year, and home prices have been falling for the past five months or so, I believe we will be seeing quick sales on the nice properties, sellers getting their asking price and some multiple offers from February through April," said Martin. "This will cause prices to escalate over the next several months. I believe, however, that this will be short-lived. Buyers are less optimistic about an economic recovery in Silicon Valley than they were at the beginning of 2002."

If there is no significant change in the local economic condition, Martin doesn't expect to see any change in the volume of sales or a big surge of buyers. As soon as the inventory of listings returns, most likely during May, he believes prices will flatten out, then slightly decrease. "I see sellers moving their homes quickly and close to asking prices over the next few months. Buyers will be better off in the summer and fall if they want more choices and less competition," Martin said.

Dulcy Freeman, a sales associate with Coldwell Banker in Palo Alto, said a flood of homes was expected on the market in early January but there was only a slow stream.

"It is a good time to sell as this low inventory has created demand for what product there is available," said Freeman. "The homes that are still tough to move are those that suffer in a slower-paced market—those on corner lots or a busy street or with an undesirable floor plan. Low interest rates are keeping market activity strong. As we see interest rates slowly go up, circling buyers will feel pressure to lock in and buy."

David Lereah, chief economist of the National Association of Realtors, said, "There will be some slowing, some cooling of the housing markets this year, but we're still going to end up with the second-best year ever, and that's not too bad."