Any market that has such prices and such massive swings in the market is a LOT more unstable compared to where many of us live. There's a good chance you can turn your 900k house into a profit, but I do honestly believe there is a bubble in California. Not only are states such as Arizona, Colorado, Idaho, etc appealing to native Californians now, but the rate of immigration to the state(I'm speaking of US Citizens) will lessen as people are priced out of the state. For me the choice is quite clear. I live in a state with very low taxes, very decent employment rates if you have a brain, very cheap property and cost of living. I *could* move to Cali and buy a more expensive and smaller home, but why? As with anywhere you can find enclaves of rich/great school systems, and where I live has pretty good weather(not withstanding bastard hurricanes or tornadoes).
I know there is a cost of living adjustment is salary for living in CA, but you can bet your ass that if the market there starts shrinking -- well then it is likely that the economy and job growth will shrink as well. Basically what I'm trying to say is that there is a good chance that California is reaching saturation in jobs, real-estate, etc. Many people are going to stop moving there and/or move out, and I do believe it is going to have a pretty negative impact on the State's economy, and the State's services. I base this simply on the fact that I feel the housing market as well as pretty much the entire lifestyle there is inflated. The current demand for housing is simply unsustainable and rising rates are going to negatively impact the market there. People are going to move or not *move* there in the first place because they will see that they simply cannot afford it. The economic growth and resulting real-estate growth that California has had is not sustainable. The economy is cyclic and will correct itself when it goes through and especially egregious pattern of growth. There will be a correction soon and I do think that the economy there will suffer. That's one man's opinion. The saving grace for Cali is that they have a HEAVILY diversifed economy, so I think that any collapse won't be because of specifc segment of the economy, but based on the state as a whole.