[Moneyguy1]

I went into "Realtor.com" and keyed on two area codes, 92870 and 94580 ( have friends/relatives in both areas) and looked at homes for sale. All I can say is for $500k you can buy a fairly big closet!!

I would have to conclude that, if the trend continues, first time buyers will be shoved completely out of the housing market. It would also be fair to say that if a person took their "paper profits" and were fortunate enough to sell, moved to practically any other state, moving back to CA would be like the words in the song "Toyland"

"Once you leave its portal, you may never return again"

However, on the bright (to some) side, a recent report shows there has been a definite turndown in a number of states re: housing costs.

Average home price in the 12 months ending this past March rose 7.7%, but for the first three months since then they have risen only .96%. Six states show price declines: Vermont, Alaska, both Dakotas, Iowa and Nebraska. On the flip side, increases in Hawaii and Nevada are 15% for the past 12 months and slightly less than that in California. Home prices are up nearly 60% on average since 1995, adjusted for inflation this is 37%.

If interest rates go up only one percent, according to Goldman Sachs, average home prices are overvalued by 15%, moreso in California, Nevada and Hawaii.

Given the rush to turn equity into cash, and the fact that, should there be a correction that brings the property value below the value of outstanding loans, this could mean big trouble to the housing market. With the surrent low interest rates, policy makers have very little opportunity to ease this downturn and reduce the consuler's pain.