Let me propose another scenario:
I suspect that you think your present house is worth around $450k because you say you have $270k in equity and your payments are only $2k per month including PITI and the kitchen sink.
If you hold on to your present house while the $700k dream house falls to the $420-$490k range over the next 3 to 4 years, your present home will then be worth $270k- $310k and your equity will be down to $100k-$125k.
If you can truly get $270k in clear equity out of your present home, I would run, not walk, to the nearest computer and get in touch with Redfin and aggressively price your house to move ASAP, even if you have to go $15-$20k under the competition in the neighborhood to do it, you will be far ahead in the long run. You can put that money in a CD and earn some safe interest while you’re waiting to see how low the housing market will fall. One thing is for sure: Housing is NOT going back UP in SoCal anytime soon (with the possible exception of super-luxury homes that are bought by the very, very rich). When all of this finally settles, cash will be king and you will have a large amount of $$$$ to purchase that dream home.
BTW: I did part of this in 2005 when I was convinced that what is happening now……would happen. The only difference is that since I retired at the age of 54, I didn’t have a job to keep me in CA so we moved to South Carolina where we’re sitting comfortably and watching the mess unravel itself. When we’re convinced it’s done, we will sell our home here and move back. South Carolina and the majority of the south did not get caught in the high-house price frenzy like San Diego and the other bubble markets did so houses are relatively inexpensive and appreciate at a rate of 2-3% per year.