Dan

I meant to refer to a great You Tube video that shows why I'm staying away, for now. It plots the Case-Shiller housing index (adjusted for inflation, of course) to the video game Roller Coaster Tycoon. Worth watching.

This is what Robert Schiller and other economists have been warning about on television and radio the past couple of years. - Sun Apr 20 2008, 16:49

I'll answer your question as a buyer who is sitting on the sidelines.

For one, this is NOT a "hot market." If anything, it is room temperature.
Two, asking prices are still way too high. By too high, I mean they are way out of range for affordability in many regions of California, including L.A. When prices come back down to reality or inflation catches up to home prices, buyers will start to step up and buy. Price levels from 1999/2000 are about right, adjusted for inflation.
Three, there is meat behind the reports about the poorly performing economy and decreasing prices in home values. Don't expect too many home buyers to jump into a purchase that looks likely to decrease
Have you seen the foreclosure heat map for L.A. lately? In most areas, 1 in 150 homes are in some stage of foreclosure. Sure, this includes default notices which means the home owner is at least 90 days in arrears, a realistic indicator of economic health.
http://hotpads.com/map/index.htm#lat=33.9841359841107&lon=-1…

Four, the credit crisis is still a problem for many. Which buyers will banks lend to, and at what rate?

The economy and housing market has taken a further turn for the worse since you posted your question in January. Many, many banks reported mortgage security losses and Bear Stearns collapsed, prompting a federal bailout that many consider just the beginning. Buyers will continue to watch the dust settle like they did in the early 1990's. Then, if you remember, it took 7 years peak to bottom in L.A.. Keep an eye on the TED spread (LIBOR vs. Treasuries) which is creeping back up. Together, they'll tell you when things start settling down enough in the credit markets. - Sun Apr 20 2008, 16:38

This SacBee article says it all http://www.sacbee.com/103/story/714253.html

In the most ominous indicator yet of the Sacramento region's struggling housing market, January saw nearly as many people lose their homes as buy them.

January's 1,815 closed escrows in Amador, El Dorado, Nevada, Placer, Sacramento, Yolo and Yuba counties was only 33 more than the 1,782 foreclosures recorded in the same counties that month, according to statistics from La Jolla-based DataQuick Information Systems of La Jolla and Foreclosures.com. of Fair Oaks.
...
The foreclosures -- more than 10,000 last year in the eight-county capital region -- are fast pushing down home sales prices.
...
Sacramento County's median sales prices for all new and existing homes are down a record 26.8 percent from January 2007, the firm reported. The county's $253,000 median sales price is down now 34.6 percent from an August 2005 high of $387,000. - Fri Feb 15 2008, 00:11

Thank you for your responses. I realize I should not have bothered to ask this question. I should have realized the only folks who would respond are agents, brokers, and sellers, all parties with a lot to gain or lose by the answer given.

The more the global credit markets boil with turmoil, the more I think nobody knows what side is up. If deflation hits (debt deflation and asset deflation already are occurring) then prices will tank. If inflation hits then prices will probably remain steady until true values catch up with the overpriced market. Mixed into all of this is the state budget which is billions in the red with massive cuts likely. I'll stay on the sidelines now until prices come down to earth from a high orbit relative to what people earn in the local economy - I think that's the best judge of values in such a topsy-turvy, sinking economy. - Mon Jan 21 2008, 23:09