Rollback in Laguna...still $740/sq ft

The owner of this Laguna Beach property is trying to get $740 per square foot for their home. Laugh if you'd like, but it's actually more than $100 per square foot lower than the past seven sales there have fetched. But even at that premium, it's well below what they paid in 2006.

31914 9th Ave, 92651
Asking price: $799,000
Asking price/ sq ft: $740
Purchase price: $1,020,000
Purchase date: 2/21/06
Size: 3 beds, 2 baths, 1,080 sq ft (built in 1928)
MLS: L26582 (136 days on Redfin)
ZipRealty price tracker: Price Reduced: 7/15/08 -- $969,000 to $929,000
Price Reduced: 7/28/08 -- $929,000 to $899,000
Price Reduced: 10/10/08 -- $899,000 to $849,000
Price Reduced: 10/17/08 -- $849,000 to $799,000
Zillow Zestimate: $1,176,000
Type: Single Family Residence
Style: Craftsman
Stories: 2 Levels
Lot size: 1,860 sq ft
From listing: Enjoy sunsets and ocean views from this charming beach cottage. Just one block from the beach. Corner lot and plenty of parking. Upstairs consists of 2 bedrooms, 1 bath, kitchen, living, wonderful fireplace and ample deck space. Downstairs is separate guest quarters with separate entrance, patio. Fenced yard with nice landscaping and expansive patio. Lots of storage and generous work area.

Customized financial info:
Minimum Income Requirement (using 30Y Fixed): $162,000, assumes no other debt/obligations.
Downpayment needed: $119,875
Monthly Payment on 30Y Fixed at 6.25% with property taxes and insurance estimated: $5,726.72
Minimum Income Requirement (using 5Y fixed): $156,000, assumes no other debt/obligations.
Monthly Payment on 5Y fixed at 5.80% with property taxes and mortgage insurance estimated: $5,515.53
Disclosure: All rates offered to the client with 1 point cost. Rate quotes assume a purchase transaction with the required minimum down payment, 720 credit score, full income qualification and required reserves. Rates are subject to fluctuation. Custom rate quotes and rate lock advice are available by visiting www.thegreatloan.com.

We used to live in a property roughly this size. It eventually got a bit cramped, and it only had one bedroom and a den. How would a property like this feel with three bedrooms? For this much money? Ahh yes, one block from the beach. 'Nuf said.

There have been four price reductions since the house came onto the market in June for a total of $170,000 off the original asking price. Assuming the home can be sold for the current price, it would mean a loss of $268,940 off the 2006 price, including 6% sales costs. It also would be a 22% depreciation off the previous sales price. Are we now beginning to see a slow unwinding of the high end?