Californians like to think of themselves as trend-setters and trail-blazers. Whether it's fashion, entertainment, or technology, the California residents always seem to be ahead of the curve. That was also the case in the real estate and housing market – the state led the way during the housing boom, and then was one of the first states to feel the pain during the bust. In the aftermath, California’s housing market rebounded quickly: prices and sales rose, lost equity was regained, and after a few years of solid growth, the market in the state may be plateauing, and could serve as a warning to other states about the danger of prolonged periods of tight inventory (lagging new home builds and few homes on the market) and declining affordability (fewer and fewer potential buyers). The California Association of Realtors (CAR) reported last week that home sales have begun to fall – August’s numbers are down 2.2% compared to last year, the sixth straight month of annual declines. That phenomenon is most pronounced in the state’s two most expensive counties: Santa Clara and Marin. CAR economists note that “runaway” home prices have begun to “constrain” sales in the area. While existing homeowners are certainly happy to see their home values increase (statewide home prices are at their highest level in seven years), it may come at the expense of the long-term health of the market. If prices rise to a point that first-time homebuyers aren’t able to purchase “starter” homes, those owners will find it more difficult to move up the “property ladder” and housing ceases to be a well-balanced market. Additionally, if interest rates see any significant upward activity, that will put even more financial pressure on first-time and low-middle income buyers, making home ownership unaffordable for many. So is California’s market a revealing warning for the other 49 state housing markets? It must be noted that each housing market is unique, and California is certainly no exception. While its tech, entertainment, and agricultural centers set it apart, it should encourage policymakers (and voters) in other states to keep affordability in mind when designing regulations that stifle home construction. When demand begins to continuously outstrip supply, prices will naturally increase, which eventually will harm young families and others looking to buy their first home. For more information, check out 'California's Housing Market Loses Steam' on National Mortgage News.