Those figures elicited a collective groan from the audience at yesterday's annual UCLA Real Estate Conference. While Gabriel, director of the Ziman Center for Real Estate at UCLA, said he didn't necessarily concur with the Goldman figures, he added that home prices in California could drop 10%-20%. The state's inland area – from Sacramento down to the Inland Empire – would be hit the hardest.

"California was the epicenter of non-affordable housing and the epicenter of subprime loans," Gabriel said. "You can go up and down the (interior part of the) state—this is where a huge amount of these (subprime) loans originated." Subprime loans accounted for 40% of loans in California in 2006.

Gabriel said domestic GDP hit a surprising 4% for Q3 2007, but that robust growth will slow to a trickle beginning in Q4. "We expect growth to decelerate sharply. GDP could go as low as 1% (for Q4).