I thought it made sense for you to buy until I read that you may not stay put long enough. Then this finally put the nail on the coffin:
"We want to keep our options open so when higher-end homes in the Bay area become reasonable we can make the jump."
Obviously you don't like Vacaville for the long term! You really want to live in the Bay Area.
I agree with Diego. You had me convinced until I read that statement. It seems like you're trying to convince yourself that you want to buy that house when, in fact, you really don't want to live there. I have to take back my "go for it" recommendation. Although I won't go as far as recommending against it.
Just for reference, I did the buy vs. rent calculation on your house. The equivalent rent (on a $470,000 house) would have to be about $3100 for the "buy=rent" equation to hold true. This assumes that you will live in the house.
If you purchase this home for $470,000 and rent it out, you would have to charge about $4100/month to break even. This calculation assumes a 5% down payment and an 8% vacancy rate. So if you buy another house in the Bay Area and want to rent this one out, you would need the rents to increase by 30% for you to break even on the initial cash flow.
If you were to rent this house out for $3100/month and you wanted to break even on the cash flow, then you would only want to pay about $350,000 for this house. Again, I assume 5% down, 8% vacancy. I would expect $350,000 to be very close to a hard bottom in today's dollars. That's how low I think it could possible go … not that it will ever get there.
If the market drops more and you decide to purchase another home in the Bay Area, you will probably be upsidedown on your first house. Its also likely that if you rent it out, you'll be losing money every month for years to come. If you could stomach the idea of walking out of your first home, it would be a great option at that point.
