What this boils down to is supply and demand. There are so many more homes available now in socal vs 10 years ago, that its insane, I don’t have the numbers, but I bet that in Riverside, Orange, and San Diego counties there are over twice as many existing homes now than there was in 1997. Has the population of these areas doubled as well? Ricks site here states that there are more new homes being built than there are people moving to these areas.

Now that the speculation is over, only first time home buyers can affect this market. Why? People moving up or down do nothing to change the inventory of homes available. They are also the only ones who can afford it as well. They are counting on the equity of their old home to get them a decent payment in a new home. Since they will be selling a home to buy a new one, the supply isn’t really decreasing. And then there are the first time home buyers, can they afford a home in socal with these current prices? How many people or even couples can afford $400k plus just to get into a starter home? Do they have a down payment? Doubt it. Lenders are going belly up, and lending standards have started to change, and they will continue to change for along time.

Lowering the interest rates can’t really help either. Rates are already insanely low, historically very low, America and Americans are maxed out with credit and debt, we have a negative savings rate, and a dollar which is loosing value to other world currencies. Investors need to fund our debt, and they soon will stop that as it will be a bad investment for them.

Many of the newer jobs that have been created within the last few years have been due to money put into the economy cash out refies, and easy credit as well, making our economy look stronger than it really is. As the big spending comes to an end, jobs will be lost, and profits will come down too. Cars sales will drop, construction will drop hard,lenders/agents/escrow will be affected, home improvement, granite, landscape, retail, pool installs, will all be hit hard. More and more people will not be able to buy homes, even at lower prices, and some who own, will be forced to sell, further increasing the amount of inventory. Some that have to refi due to rate resets, will finally get it that they couldn’t afford the home in the first place and either try to sell or just walk away. Short sales, repos, and other situations like these are already filling up the MLS, craigslist and the local papers.

So the supply of homes is going up and the demand is going down due to a lack of qualified buyers. The only way this can continue is if wages double or triple like the recent home prices.