The beige stucco townhouses and palm-lined cul-de-sacs of San Diego County exude a quiet tranquility, but that demeanor hides a difficult reality: Even after a sharp housing slowdown, cities in California are still America's least affordable places to live.
This means that California, which helped lead a nationwide real estate boom, could face more downward pressure on home prices.
Statewide, just 25 percent of households can afford an entry- level home, according to an index released this month by the California Association of Realtors. That's far below the national average of 61 percent who can afford to purchase a home.
Forecasters don't expect an outright plunge in California prices. With those palm trees and the Pacific Ocean beckoning, the Golden State appears sure to retain gilt-edged home values.
But if there's a floor under home prices in the nation's most populous state, there is also a ceiling.
"Home prices have gotten out of balance with incomes," says Mark Milner, a real estate analyst at PMI Mortgage Insurance in Walnut Creek, Calif. "Over time, those have to come back in balance."
The figures are eyepopping. First-time homebuyers paid a median price of $477,400 in California last year - 2-1/2 times the US median, according to the California Association of Realtors. The median entry-level condo in California sold for $360,160.
What happens here will be important, not just because California is home to nearly 1 in 8 Americans. It will help set the tone for the nation's housing market in the next year or two.
Moreover, the state's struggle over affordability represents, in extreme form, a national trend. Across the US, rents and home prices have risen faster than incomes over the past seven years.
In many large cities from Washington to Dallas, home prices have jumped in remote exurbs by nearly the same percentage as in the inner suburbs. For many buyers, a long commute is no longer a ticket to an affordable home.
Rapid price gains are over
California's affordability crunch doesn't ensure that house prices will fall. But clearly a period of rapid gains has ended. Prices last year fell 4.2 percent in San Diego, sagged 1.4 percent in San Francisco, and rose 2 percent in Los Angeles, according to Standard & Poor's Case-Shiller indexes.
Many analysts say the market here, and nationally, will stabilize this year. The economy remains generally healthy, they say, and builders have slowed down to avoid a pileup of unsold homes.
"There is reason to believe that [price] appreciation will be coming back soon," says Luke Tilley, a Philadelphia economist at Global Insight, who follows the California market.
Another camp of forecasters says California prices probably have further to fall. They note that housing downturns often take several years to hit bottom, and that high prices have sidelined many would- be buyers.
"We're expecting ... a sharper and deeper contraction," says Celia Chen, a housing economist at Moody's Economy.com in West Chester, Pa. She says the state's price run-up went beyond what could be justified by income or population growth.
The firm has predicted that several California cities will see prices drop further - some by 10 percent or more - and won't hit bottom until sometime next year.
In one measure of how high prices have soared, the California Building Industry Association recently found that 18 of America's 20 least affordable metro areas are in California.
Affordability has long been a challenge for the state, thanks to its sunny beaches and relative scarcity of buildable lots.
Building more condos, fewer houses
In San Diego, one result is that new construction is increasingly dominated by condominiums and multifamily units, not the traditional single-family home. …