Both California and national sales activity continues to be strong even though inventory is at a low point. "Year-to-date sales have increased 2.8 percent compared to the same period a year ago, while unsold inventory remained near its record low at 2.1 months in September," said Leslie Appleton-Young, vice president and chief economist for the California Association of Realtors.

Nationally the market for existing single-family homes rose again in September and set a third consecutive monthly record, while home sales in California increased 28 percent compared to the same period a year ago.

"We're continuing to experience the impact of the recent rise in mortgage interest rates on home sales in California," said California Association of Realtors President Toby Bradley. "Although interest rates are still near their historic lows, the psychological impact of rising rates has created a heightened sense of urgency in the housing market."

David Lereah, chief economist for the National Association of Realtors, said, "We knew the September pace for existing-home sales was going to be a big number, but after setting records in July and August, we thought the pace might start to slow. This underscores the powerful fundamentals that are driving the housing market—household growth, low interest rates and an improving economy."

The latest figures show 30-year fixed mortgage interest rates averaged 6.15 percent during September 2003 and adjustable mortgage interest rates averaged 3.86 percent in September 2003.

With housing inventory levels dropping so low, Lereah said the tight inventory situation is continuing to drive home price appreciation. Locally, Realtors are finding inventory the number-one problem for buyers and sellers alike. When looking ahead to the end of the year, most Realtors view the market as continuing to be strong, yet they are quick to qualify predictions with a caveat about the inventory level.

"There is a definite shortage of homes for sale in Silicon Valley," said Chuck Lane of Coldwell Banker. "We are seeing some of the lowest numbers of homes for sale for this time of year in a long time. The number of homes now is about equal to what it was in January 2003, which has always been one of the lowest parts of the year for active listings."

As a result of the low inventory, Realtors are seeing more instances of multiple offers. "Homes are getting multiple offers like we have not seen in quite some time," Lane said. "I have heard about at least two properties where one had more than 30 offers and the other had over 40. The market for well-priced and not-expensive homes is outstanding."

When looking forward to the end of the year, Lane believes the market will remain strong. "I think with the change of governor and a positive attitude towards business, that things will be active. Looking out into 2004, things could really heat up," Lane said.

Realtor Frank Quinn of Alain Pinel Realtors in Los Gatos also predicts that 2004 is going to be a great year for the real estate market.

"The only missing ingredient right now is inventory. The million-dollar question that only time can answer is what will happen after the first of the year? Are sellers holding out until the new year, or will this limited inventory continue? My guess is that we will see an increase in the inventory at the start of the new year, with demand continuing to be strong," Quinn said.

Quinn is seeing evidence of a shortage of inventory especially in the first-time-buyer price range under $650,000. Using Sunnyvale as an example, Quinn noted there were 117 homes pending in escrow, with only 72 homes available in the latter part of October.

"With such a limited inventory available, there really is no reason for homes not to sell in less than 45 days in this market. I always make a point of showing my sellers the homes that have sold, pointing out the Days on the Market. Overpriced homes seldom sell in any amount of time, especially when there are so many buyers out there right now trying to take advantage of record low interest rates," Quinn said.

Realtor John Leslie of Alain Pinel Realtors said new listings will be welcome in the next few months since there are a lot of buyers out there who can't find what they want. "One common complaint I keep hearing from the selling agents is that their buyers are disappointed at the choices they have. Many report that they missed the boat and regret not making offers on homes that have now sold," Leslie said.

Leslie sees the market slowing due to the season as well as for the shrinking inventory and lack of choice for the homebuyers.

"This could lead to another seller's market after the first of the year. The bargain hunters are picking through the listed homes, hoping to get a real deal on a home that didn't sell in the summer. As for the sellers, they are usually on the market this time of year because they either have to sell, or don't want to wait until next season or after the first of the year and face more competition," Leslie said.

Realtor Judy Jarvis Ellis of Alain Pinel Realtors feels the current market is strong and good for both sellers and buyers. "For sellers the prices are holding well and there's very little inventory. For buyers, interest rates are still at historic lows and the economic harbingers are beginning to gather momentum for a sustainable recovery," Ellis said.