I’d be a little leery of any statements of certainty regarding the future of the housing market. To me, such certainty indicates a basic misunderstanding of the fact that the housing market is incredibly complex and dynamic. Thousands of factors are in play, and nobody can say with certainty what’s going to happen. Besides, if you interpret the phrase “housing will revert to the mean” to mean that the ratio of prices to income will revert to the mean, then that doesn’t necessarily mean that nominal prices will come down. As has been discussed on this site many times, if prices stay level and inflation really takes off, the price/income ratio could revert to the mean without nominal prices dropping.
That said, I think there’s a good chance nominal prices will come down. Will they come down enough for it to be worth it for you to rent? That, obviously, is the question. And the only thing you can do, it seems to me, is decide how much you think they’ll come down, and then decide whether you think that’s worth it or not. For instance, if you think there’s a 30% chance that prices will either come down less than 10% or go up, a 40% chance prices will come down 10-30% and a 30% chance prices will come down more than 30%, where does that leave you? Keep in mind that you’re taking a chance either way. If you sell and prices come down a total of 5%, you’ll probably wish you hadn’t gone through the hassle of moving, renting, etc. If you don’t sell and prices come down 40%, you’ll wish you sold.
If you’re going to rent until you buy your new house, then it really doesn’t matter if you lose your low property tax basis. Your property tax basis on your OC house will be the same regardless of what you do in the meantime. The comparison to make to determine costs for the next 5 years is between the costs of renting and the costs of owning your current house, property tax and all. And, of course, you have to factor in any appreciation or depreciation of your house.
If you’re going to sell one house and buy one house and the only variable is when you’re going to sell, then you really don’t have to take into account the costs and inconvenience of buying and selling, either. It adds up the same either way.
You do, of course, have to figure in the inconvenience of moving an extra time (or more than one extra time) and the inconvenience of renting. If you rent an apartment, you don’t usually have to worry about the landlord deciding he wants to sell or move in or otherwise kick you out (although a conversion to condos can usually not be ruled out). But you have to live in an apartment. If you rent a house, you’ll generally have to concern yourself with the landlord’s intentions. And you have to keep in mind that if the house you’re renting is an investment property for your landlord (which, of course, it usually is) then there’s an increased chance he’ll want to sell if prices really start to come down.
Only you and your wife can put a value on such intangibles such as “pride of ownership,” freedom from worry about being forced to move, etc. What’s important to you might not be important to someone else, and vice versa. So don’t let anybody tell you what’s foolish and what’s not.
And only you can put a (obviously negative) value on any tension that may arise from “convincing” your wife to move if that’s not really what she wants.
