In our area the more established, older homes and areas have retained values and have little REO/Short-sale activity. They all regularly out perform the new homes being built in price, days on the market and price stability. Our new home areas have ungodly foreclosure issues happening and slash and burn builder activity.
I think it is affordability driven here in California. The reason the funny-money all started when it did was due to the consumer NOT being able to afford a home with traditional financing. Here in Sonoma County, California, our affordability index got as low as 12%!! That meant only 12% of the population could afford a home with the county's median income. And that just didn't happen overnight. It took 4 years to drop to that point but since we had appreciation and folks able to refinance and move onto the next predatory loan we all were fine! Unemployment, Wages and Affordability--the holy trinity.
I remember in Palm Springs, Coachella Valley, and median price in the low $200's but affordability like at 14-18%! Huh? Wages! A complete "service sector" economy. Employment consisting of those taking care of retirees homes! Pool guys, gold course maintenance workers, housecleaners, fast-food, restaurant workers, landscapers, etc. $10.00 hour wages ain't going to get you a home!
Here in our County we just had a big series of articles in the local daily taking on the sub-prime lenders. One guy tried to justify putting someone into a home with an income of $40,000 and a home price of $410,000! Now Really!