The general state of the real estate market maybe encapsulated in the following statistic: According to the National Association of Home Builders and Wells Fargo in the first quarter of 2001, 42.3% of homes sold in Los Angeles were available to the median earning household ... in the first quarter of 2007 of 3% of homes sold in the same market were affordable to those earning the median income.

Affordable assumes a 10% down payment at a 6.1% mortgage and tax and insurance costs calculated by the Federal Housing Finance Board and that these items added together did not exceed 30% of the borrowers gross monthly income.

In 1997, only San Francisco had an affordability index above 4.5 (this index measures home price to gross earning and is calculated by taking the home price divided by the annual gross income of the median household. Today 13 cities are over the 4.5 level. This number is not influenced by inflation or other factors such as interest rates since it is a current measure of a housing cost divided by the current median gross income.

Here lies the problem, if the median household income cannot afford the median household price one of two things will happen ... prices must go down considerably or incomes must go up ... the third option of some exotic mortgage to get you in the property DOES NOT EXIST ANYMORE.