"Net cash to sellers has never been higher since California Association of Realtors began conducting our annual survey of the California housing market," said the association's vice president and chief economist, Leslie Appleton-Young. "Sellers in 2003 realized an 8 percent annualized rate of return, far exceeding the returns on many other investment options."

The association has conducted its annual housing market survey since 1981.

For buyers, robust price appreciation impacted the home-financing component of the purchase transaction, according to the report.

"As the median home price soared to historic highs, the median down payment rose by 20 percent in 2003 to $59,000," Appleton-Young said. "There also was a $60,000 gap between the median down payment of a repeat buyer ($86,950) and that of a first-time buyer ($25,500)."

The State of the Housing Market 2003 report also revealed that nearly one out of four transactions in 2003 involved a second mortgage, an 18 percent increase compared to 2002. This figure was well above the 20-year record low of 4.4 percent in 1988, but below that of 1980, when second-mortgage use exceeded 40 percent.

According to the report, sales of detached existing single-family homes are expected to decline in 2004 from 2003's record-setting pace, while price appreciation will continue to be driven by strong demographics and higher, though historically low, interest rates in 2004.

The median price of a single-family home is forecast to increase 13 percent from $369,500 in 2003 to $417,500 in 2004, while sales are projected to decline 2 percent to 584,600 in 2004 from a record 596,500 in 2003.

As long as mortgage rates remain in the 6 to 7 percent range, most households will favor fixed-rate mortgage instruments over adjustable mortgages, according to the report. However, the share of adjustable-rate mortgages will climb in the year to come. Supply conditions in the market will remain very tight, and have the potential to set new record lows in the coming year.

"Strengthening economic conditions should drive job growth and household incomes should head upwards, adding fuel to the housing market," said Appleton-Young. "Repeat homebuyers will continue to dominate the market in 2004, rolling their equity gains on prior home sales into subsequent home purchases."

"Job growth was nil over the past two to three years, but households with jobs saw their incomes increase," she said. "With job numbers on the rise, there will be a spurt in household-income growth. The cooling effects on the housing market of rising mortgage rates will be partially offset by gains in household incomes, resulting in continued strength in the housing market."

Information provided in this column is presented by the Realtor members of the Silicon Valley Association of Realtors at www.silvar.org. Send questions on any topic to jnewton@jnpr.com.