This housing bubble is more serious than you estimate. The effects of L.A. real estate declining will be felt from Wisconsin to Georgia etc.
However, it won't be permanent and people who bought their homes prior to the start of the boom and who have no plans to sell or refinance will not be affected too badly.
I bought my current house in the summer of 2001, it is now worth about three times what I paid for it. I put close to 20% down and I have not taken any equity out (though I did refinance last year for a lower rate). I fully expect the house to lose a fair percentage of it's value over the next year, but I don't plan to move anytime soon, I don't need to refinance and I don't need an equity loan. So the reality is that all I will lose is some paper profits that I never had any real plans to cash in on. If for some reason I decided to move (and that would be a "geographic" move, not "upsizing"), I would get less in a year than I would now, but I would also be paying less for the house I was buying -- the real negative would be the higher interest rate, but when you look at the history of mortgage rates, the "higher" rates of today would still have been a "bargain" just a decade ago.
Why would the LA market affect those whose market is NOT declining ?