First of all, there is no need to fear. You seem like a person with good financial discipline so that will make your financial outlook much better than the general public. The echo bubble is frustrating, yes. But don’t compare it with 4 years ago, because should’ve/could’ve is irrelevant. And you weren’t in a position to buy 4 years ago anyway.
Second, I actually think $250K down for a $400K house is a bad idea…no matter how low you want the payment to be. The real risk for home purchasing is liquidity that many people drained out their savings with the down payment that makes them less well prepared for the future uncertainty. I wouldn’t invest bulk of your saving on an investment vehicle that only carries less than 3.5% return (not counting mortgage interest deduction). I would take conventional 80% loan and save the money for emergency fund and future investment opportunity (although there are depressingly few such opportunities right now)
Third, the last few years have been very challenging to the long-term value based investment. Don’t lose hope just yet. The basic driver for long-term value working historically has been the excessive volatility of asset prices relative to their underlying fundamental cash flows, and recent history does not show any evidence of that changing. Every bubble falls back to trend line and there has been no exception. Remember that you are paid to rent if your rents provides better cashflow compared to owning. Historically, the cashflow from real estate investment isn’t necessarily better than any other investment vehicle (e.g. index fund), it sounds better to a lot of people only because they leveraged with home purchase.
Lastly, Temecula is a wonderful city. Check it out sometime.
