"You will find that, por ejemplo, in the Inland Empire a $375,000 3 BR 1 BA rental house in fair condition in a good neighborhood will yield $1500 - $1600 per month. That's an annual return of 4.8 percent, using the conservative $1500 per month rent figure. "
If you owe 250k at 6% interest, then your mortgage payment will be 1500 a month, and that's not including taxes, insurance, . . etc. It makes no sense to put down 125k to buy the place.
If the rents can't support the price, the price will go down. If I was there, I wouldn't buy a house. I would just rent. Why do you need to buy when you can just sign a very long term lease like 5-10 years? I think you would be able to basically control the property.
It looks like there are too many naive speculators in So Cal just like the dot com bubble. Everybody's getting rich there in real estate and everybody wants a piece, and everybody is greedy.
I think if the interest rates stay the same the bubble will deflate, but if they increase it too fast, it will pop.
PS. I thought my property was getting low rent(1400/month), but mine only cost 190k, and it is only 3 years old.