The SJ Mercury News printed a story about the new record low interest rates and their impact on sales. The story is here:
The drop in interest rates is great for homes with conforming loans of $729,750 or less. There are only a handful of condos in Los Altos that meet that requirement so the impact on the local inventory is minimal.
However, the low interest rates do help the high-end indirectly by clearing inventory in nearby markets such as Mountain View, Sunnyvale, and Menlo Park. As low-end or mid-market inventory drops, confidence grows with buyers and sellers in the high-end. As that grows, more lenders will enter the high-end lending market.
Jumbo mortgages have always been expensive and that still holds true today. One major issue with the mortgage crisis has been a reduced number of lenders willing to do jumbo loans. Because there is little competition, there is no incentive to reduce rates. That should all change as the market tightens up.
So, the real benefit of dropping rates and a strong market is an eventual increase in jumbo lenders. When that happens, the Los Altos market might really take off again.