Tarnish on the Golden State: Underwater Mortgages, A Glut of Distressed Sales and a Shortage of Jumbo Loans have Brought Dark Clouds over the Normally Sunny California Housing Market. And Yet, First-Time Buyers are Taking Advantage of Newly Affordable Homes (Cover Report: Wholesale Retail‪)‬

All recessions are temporary," notes Beacon Economics LLC, Los Angeles, in a September 2009 forecast. "They result when changes in the structure of an economy happen too rapidly for smooth adjustments to occur." But when you're caught in a downturn, you must face the unfortunate consequences--even if you live in Hollywood. * Hugh Hefner, the 82-year-old founder of Chicago-based Playboy Enterprises Inc., put his L.A. home up for sale in March 2009. Hefner and his wife Kimberley listed the 7,300-square-foot English Manor-style property at just under $28 million. What the Hefners originally paid for the property isn't disclosed, although it was listed at $17.25 million when they purchased a little over a decade ago. In August 2009 the Hefners accepted an offer for $18 million on the home. * Despite the home's recent renovations and gated privacy on 2.3 acres, as well as its prime location next to the Los Angeles Country Club and the Playboy mansion, the property still wasn't immune to the California real estate market's woes. * It will come as little solace to the ageing Lothario that the discount looked about right," notes The Economist. "House prices have fallen by one-third from their peak nationwide, and by much more than that in the worst-hit states, such as California, Florida and Nevada." * California real estate appreciation and its recent plunge both have been outsized compared with the rest of the country. Median California prices reached a peak of $594,530 in May 2007 before dropping almost 60 percent in less than two years, according to the California Association of Realtors (CAR), Los Angeles. In February 2009, the median price for existing detached homes bottomed at $245,170. By September, values had climbed back to $296,090--still a 50 percent free fall from their heights, according to CAR.