The lack of jumbo loans has destroyed the CA real estate market. Without aggressive, affordable jumbo loans, prices will naturally gravitate towards the most available financing, which is Fannie/Freddie $417k loans. 90% of the most widely used loans in CA over the past several years have vanished in the past 6 months. The new Fannie/Freddie 'ConJumbos' carry a rate much too high to complete with the affordibility of the programs that were lost. Now that all the exotics and jumbos are gone, home prices will also have to gravitate towards borrower qualifications using real household income. This means that if the average household income in San Francisco Bay Area is $85k, that borrower can qualify for about a $350k loan. Currently, the average home price is closer to $550k meaning we could have alot further to drop. Now, that we are back to traditional lending, historical valuation measures must be considered such as 3-4x household income, rental cap rates ect. As prices drop, defaults natually rise across all borrower types due to the 'negative equity effect'. Banks then take more losses, tighten credit further and this never ending snowball cycle continues. -Best, Mr Mortgage

San Francisco Home Sales Fall 41% Amid Tighter Credit (Update1) 2008-04-17 13:53 (New York) By Dan Levy

April 17 (Bloomberg) -- Home sales in the San Francisco BayArea dropped 41 percent to the lowest level for a March in more than two decades as stricter mortgage standards reduced the number of potential buyers and prices fell, DataQuick Information Systems Inc. reported.

The number of houses and condominiums sold in San Francisco, Santa Clara, Marin and six other counties fell to 4,898, the seventh consecutive month that sales reached a record low, La Jolla, California-based DataQuick reported today. The median price decreased 16.1 percent from a year earlier to $536,000.

Sales are declining as lenders require higher down payments and credit scores and buyers have difficulty obtaining mortgages above $417,000, known as jumbo loans. The Bay Area median price would have been closer to $597,000 last month if jumbo availability had ``remained stable,'' DataQuick said.

"It still appears that a lot of Bay Area activity is just on hold, waiting for the mortgage markets to open back up,'' Marshall Prentice, DataQuick's president, said in the statement.

Home purchases made with jumbo loans accounted for 29.8 percent of sales in March, down from 62.2 percent a year earlier, said DataQuick, a subsidiary of Vancouver-based MacDonald Dettwiler and Associates, which began collecting the data in 1988.

Editor: Peter S. Green, Walid El-Gabry. To contact the reporter on this story:

Dan Levy in San Francisco at +1-415-617-7077 or dlevy13@bloomberg.net