I enjoy following California real estate since I lived in the Bay Area for 9 years. Goldman Sachs has published an excellent paper on the housing troubles in California and predict that prices should fall between 35-40% over the next several years.
During my time in California, it seemed like there were many predictions like this. Real estate prices out there have always seemed disconnected from how much people make. While I think to say that all of California will see this kind of a drop might be a stretch. Certainly areas such as the Inland Empire in Southern California may see this kind of crash. It’s difficult to imaging this happening in the Bay Area.
The wild card here is obviously the unprecedented slowdown with sale volume down 50% plus the massive exposure they have to the subprime debacle. California may very well be the epicenter in subprime mess.
Time will tell if Goldman Sachs is right.  The report has some fantastic charts and graphs for those who are in to this. The do try to extrapolate some information for a more national view.