California witnessed some of the steepest home price depreciation at the height of housing crisis causing 33% of all mortgages to be underwater by mid-2010. But one research firm sees that changing and expects prices to increase substantially by 2014 as the job market improves and the market recovers. The average home price in the San Diego-Carlsbad-San Marcos metropolitan statistical area in the first quarter was about $324,200, according Local Market Monitor's latest report, while the average home price in San Francisco was $623,200 and the average home price in Los Angeles-Long Beach-Glendale was $352,200. These home prices are down 1%, up 7%, and up 15%, respectively, from each metro's equilibrium price. The equilibrium price is a unique measurement developed by Local Market Monitor that determines what home prices should be if outside factors, such as too much construction or an above average amount of speculation, had no impact. Any market with an average price more than a 15% difference from the equilibrium is considered risky. According to Carolyn Beggs, chief operating officer of Local Market Monitor, several improving indicators in California will boost price between 4% and 5% by 2014 — the same amount of appreciation at top markets in North Dakota and South Dakota. Most notably, however, is job growth. Over the last 12 months, job growth trended positively in most major California markets, the Local Market Monitor report found. Jobs grew at a rate of 2.5% in the Santa Cruz-Watsonville, Calif. metropolitan area, followed by Santa Rosa-Petaluma, Calif. at 1.6%, San Jose-Sunnyvale-Santa Clara, Calif. at 1.5% and the San Diego-Calrsbad-San Marcos, Calif. MSA at 1.1%. In the Los Angeles MSA, jobs grew a moderate 0.6%, as did San Luis Obispo-Paso Robles, Calif. (up 0.7%). "California metros look like they'll have better job growth then say somewhere like Washington D.C.," Beggs commented, adding that population growth too will contribute to price appreciation in the Golden State. "Generally speaking, if there's a large inflow of people it increases demand, which will stabilize home prices." Technology firm RadarLogic slightly disagrees. While many experts are saying the economy needs job gains to bolster housing, the New York-based company thinks this theory is somewhat backwards. A large number of jobs were created by the housing market, for example, construction jobs. Many of those jobs disappeared when the market crashed. "So rather than strong job growth driving a robust recovery in the housing market, we expect to see slow absorption of excess housing supply and a slow stabilization in housing values eventually spur housing construction and consumer confidence, and in turn drive a recovery in jobs," RadarLogic said in commentary. Still Beggs claims California is no Nevada or Arizona and prices are posed to recover ground in the next three years. "We see price correction taking place," Beggs said. "The markets are of much lower risk compared to the last five years." Write to Christine Ricciardi. Follow her on Twitter @HWnewbieCR.