My wife and I live up in Temecula and recently did exactly what PowaySeller did – sold our house, put the money in CD’s, and we’re now renting a house. I actually like the house we’re renting better than the one we owned (this was an unexpected bonus). I completely agree with everything PowaySeller said and I would also add a few more reasons why I think real estate is overvalued in So Cal:
1) Go to Google and search on “peak oil”. I am convinced that energy (especially oil) prices are on a long term up-trend which will cause property values in outlying areas / areas with no public transportation to fall substantially as the cost of commuting continues to rise.
2) There are a LOT of people who overextended themselves with home equity loans and ARM’s on the hope that “when the value increases, I’ll just refinance”. When they all have to sell under duress or get foreclosed, this will start downward spiral in prices.
3) Much of the job growth in the last 5 years has been in the housing/construction/real estate/mortgage industries. These people buy houses, which increases their income, which allows them to buy more expensive houses. When this cycle reverses itself, it will drastically reduce demand.
4) The economy is not nearly as strong as Dubyah would have us believe. Most of the non-housing related jobs created in the last 5 years are either temporary jobs or low-pay service jobs that don’t pay enough to buy a shack in So Cal. We don’t make anything in this country anymore and we’re losing more and more industries to foreign countries every year. We are drowning in debt as a nation – government agencies (federal/state) as well as individuals/corporations. The debt levels have increased risk enormously. Not to mention all of the Social Security/pension/retiree health care issues on the horizon. The list goes on. We’re living in the last days of the Roman Empire and we’re overdue for a correction IMHO.