What would have to happen for San Diego prices to drop 15%?
Runaway inflation as in 1978? This would not affect nominal prices. The 500,000 house is not reduced in price – it just costs less because the value of a dollar is reduced.
Increased interest rates? Unlikely. Rich has shown that interest rates do not correlate well with house prices in the USA. I think this due to the 30 year fixed mortgages available in the USA. In the United Kingdom, house prices are very sensitive to interest rate changes because there are no fixed 30-year mortgages. (Funnily enough, the UK and Canada have more expensive houses than the USA despite the absence of fixed mortgages)
Regulatory changes? Maybe. Say Trump kills Fannie and Freddie and the FHA. I think prices would drop due to market shock in the short term. But look at Canada and the UK – they do bubbles even without Fannie and Freddie and the FHA.
Tax changes? Possible. If Trump kills the mortgage interest deduction while increasing the standard deduction I think the luxury house market will fall at least 15%. Many wealthy people use mortgages as part of their tax strategy. But I doubt the sub-$1,000,000 market would be affected. If California got rid of Prop 13 then house prices might fall 15%, but i see expensive houses in states without Prop 13.
