The latest results of the S&P/Case-Shiller show two critical things; three months in a row of positive growth for San Francisco and the most recent month is stronger than the prior two.
The downside is that the market strength is coming from low and mid-priced properties. That means for now, the strength in markets such as Los Altos and Los Altos Hills will come from limited inventory and relatively good prices.
The number of properties available has been dropping which is normal this time of year. There are only 70 active properties on the market today. Most properties at the low-end of the Los Altos market (priced $1-1.5M) have been selling fast, regardless of condition. A 3/2 serious fixer-upper just came on the market at $1.088M and sold in 4 days.
Compare that to homes priced in the $2.5-5.0M range and the average days on market is much higher. One home offered for $3.7M has been on the market for 468 days.
Homes that sell fast in the low end are generally selling at or above asking price which is helping stabilize the local market. If inventory levels can remain low going into 2010, we should see prices rise very slightly next year. Just to be clear, I'm talking rising 1-3% depending on which end of the market you're in. The average annualized increase in Los Altos in past decades has been about 7% but since we're recovering from a double-bubble (dot com and 05-07) I believe we won't see similar gains for a long time.
Here's a link to the article for the latest Case-Shiller numbers: