Coldwell Banker Bain President William Riss was reading a newspaper last month when this singular fact caught his eye: Microsoft employees would soon be eligible to exercise more than $1 billion in company stock options.

Turning to Paula Fortier, manager of his Bellevue real-estate office, Riss asked what effect she thought this potential infusion of wealth might have on the Eastside. Much of it will go into move-up houses, she told him.

"What we're finding with the Microsoft buyer," says Fortier, "is if they can afford to buy (a starter home) initially, and a lot of them cannot, they buy a $250,000 house."

But when they trade in that first house, it's not for a $350,000 house as the previous move-up group might have done. The Microsoft buyer exercises stock options. "They go to a $900,000 house," she marvels.

This would be only an interesting anecdote except for this: Our area's many technology millionaires have almost single-handedly defined a new price tier for housing. And nowhere is that felt more than on the east side of Lake Washington, where the region's largest houses and highest price tags are found.

"Surreal estate," is what Joan Whittaker, a Windermere broker with an office in Redmond, calls her business. "This is ground zero for the high-tech surge.

"There is an enormous pent-up demand from these enormously wealthy young people. So if you have a perfect waterfront house just put it on the market and stand back."

Whittaker tells of a single woman, a techie, so determined to buy a home on prime Lake Washington waterfront that she beat out all other potential buyers by paying $700,000 over the asking price. This is not a misprint - $700,000 over the asking price.

With this kind of gold-rush frenzy, it's not hard to guess the state of the Eastside's housing: It's darned expensive.

Mercer Island is priciest

Twelve of King County's 20 most expensive neighborhoods are on the Eastside, according to a Seattle Times computer analysis of single-family home-sales data from the King County Assessor's Office. The other eight are in North Seattle.

The most expensive neighborhood is Mercer Island. Last year buyers paid a median price of $560,000. Median means half the houses sold for more, half for less. But the word "less" may sound laughable to most people because 95 percent of the island's homes sold for more than $300,000.

Not far behind was the Bellevue-Medina Gold Coast, including Clyde Hill, Hunts Point and Yarrow Point. The 1999 median price there was $469,450. Realtors report that buyers are snapping up older homes for even-higher prices just to get the property, then leveling the houses and rebuilding to suit their dreams.

The third-most-expensive Eastside area includes the new neighborhoods of Novelty Hill, Ring Hill and Union Hill. Never heard of them? If you've ever been to a Seattle Street of Dreams, you've likely been there because this is prime Dream Street territory.

These are the neighborhoods of new mansions - lots of them. Appraiser Alan Pope explains the increasing number of multimillion-dollar Eastside houses by saying, "The wants of the very high-end buyers are changing. I used to say the high end wanted Lake Washington waterfront. Now it's expanded beyond that because you don't get privacy on the water. Now the high end wants estate-quality environments in the suburbs."

So what do you pay if you don't want tour boats cruising by with speakers blaring as the guide tells awestruck out-of-towners how much you paid for your waterfront palace?

The median price of a house in Novelty, Ring and Union hills was $426,000 last year, although a full 25 percent sold for $564,000 or more. The Novelty, Ring and Union hills area is prime sales territory for Elinor Smith, an agent with Coldwell Banker Bain. She calls the big houses she sells "executive casuals . . . the kind of thing that just says home and hearth."

Big prices, young buyers

A decade or so ago Dream Street buyers were 50-year-olds who had methodically bought their first home, worked hard and traded up repeatedly, she says. Now buyers are in their 30s and may well be more affluent than their parents. They have "a lot of newfound wealth," Smith says, "and it's not just Microsoft. They work hard and play hard, and they have all this discretionary income. They're very home-oriented, and it's an investment."

On a recent day Smith drove north on Willows Road, past a half dozen or more technology companies, to Redmond's Grousemont Estates neighborhood. Begun as a Street of Dreams in 1987, the original homes sold for under $410,000.

The well-manicured area has grown and aged well, and today, Smith says, $700,000 for a house there would be a bargain. She stops in front of a 5,000-square-foot home being sold by a retired sports star. She says several professional athletes live in the neighborhood, along with lots of techies whose names you've never heard.

Smith shares one of those little zingers we hear so often now: One tech worker just bought a house here based not on his family income, which is about $70,000 annually, but on his stock portfolio of $2 million plus. Her former-sports-star client has put his four-bedroom, four-bath house on the market for $1.3 million. It sits on half an acre and backs a greenbelt. Although the house is just one story, the entry's soaring ceiling and 20-foot columns make it look like two stories from the outside. There's a lap pool in the back yard.

Inside it's all stone floors, marble counters, mahogany built-ins and designer touches. There's a family room and a large den. But it's the home gym - big enough for a dozen full-size workout machines - that's attracting potential buyers, Smith says, among them an athlete newly signed to a Seattle team.

Should that athlete decide he wants a brand-new mansion, Smith can show him those, too, because there are a half-dozen new housing developments nearby with homes priced above $1 million.

How about 'real-world' buyers?

Amid all this new wealth - and the way it takes house prices to mind-boggling levels - a constant concern among realtors and others is affordability for regular working folks, the kind who don't have big stock options.

Windermere's Whittaker calls them "the real-world market" and says increasingly they're having to "live further out or buy less, or work two jobs" to live on the Eastside. "These are choices people are having to make."

"Trying to find anything under $200,000 is pretty impossible," adds Windermere agent Rick Franz. "Under $200,000 will need work."

Of the 23 Eastside areas analyzed by The Times, only two - East Renton and Fairwood - posted median sales prices last year of less than $200,000. Everything closer to downtown Bellevue or Redmond was more.

That astounds Tom Huxtable, a Windermere office owner. Modest older homes in Bellevue's Lake Hills sold for $60,000 in the 1980s, he recalls. "Now you have to put a 2 in front of those numbers. The appreciation is directly attributed to the geographical location."

But appreciation is an interesting thing. Over 15 years, just three Eastside communities were in the county's top 25 percent: Mercer Island, Bellevue-Medina and North Bend.

By contrast, 13 North Seattle and four South Seattle communities were in the top quarter.

Appraiser Alan Pope says Mercer Island and Bellevue-Medina made it into the top quadrant because both have major highway links to job centers. North Bend may be in that category, he theorizes, because of new construction.

There may be a number of reasons why more Eastside communities aren't achieving top appreciation. Unlike in-city Seattle, new housing is still being built, which cuts down the competition for existing housing stock.

Eastside houses also tend to be newer, and for many Seattle buyers, older, established neighborhoods with smaller houses are highly valued. That also means the Seattle buyer pays much more per square foot than most Eastside buyers.

And finally there is the traffic congestion factor. Commuting from the Sammamish Plateau is seen as a negative, whereas Seattle neighborhoods with easy access to bridges and freeways are considered desirable.

But considering that the Eastside's high-tech industry is still basically in its infancy, appreciation, and many other things, could change substantially.

Seattle economist Dick Conway stresses that it is job growth that leads to housing demand. Thus Eastside homes "will continue to appreciate if there's continued growth in those jobs."

"The 'Baby Bills' could continue to fuel it," he says.

Elizabeth Rhodes can be reached at erhodes@seattletimes.com.