Are Sacramento County and Central Valley, CA a real estate disaster area?

How long will it take for Sacramento County and Central Valley markets to recover? After many years of a real estate Eldorado - the markets over there hit a slump. Many investors doubled their money in 2 years: a new 5 bedroom, 3 bathrooms homes increased in value from $300k-$400k in 2003 to $600k - $700k in 2005. But for investors, who have not sold a prolonged market slump is in store (according to some opinions it will take 2 to 3 years for prices to level off and 6 to 7 before they will start moving up again). A 3 year old house, which could sell for $650 k a year and half ago might sell for $550k - $575k today and only if it is in perfect condition as they have to compete against new homes still being built. 2 years from now its value might be below $500k.

I am a San Francisco (SF) Peninsula broker and I helped some of my SF Bay Area clients to buy and sell properties in Elk Grove (Sacramento County). However, some of them are facing a difficult decision.

What would you do if you were an investor in this situation? Should investors hold on to their properties and wait through the slump or sell a soon as possible? Selling is not easy too. If you drive by the area you will find 4 to 5 “For Sale” signs on a single block in newly built communities. Average time on the market there is 90-120 days. But waiting out might be difficult or impossible for many investors as prices of rentals have gone down. You will have a negative cash flow even if you have 30 - 40% of equity and are paying a minimum payment on the 1% Option ARM loan (many investors got 100% financing and after 2 years combined loans to a single Option ARM loan). Of course, one solution does not apply to everyone, but what would you do or what would you advice your customer who found himself/herself in this predicament?