pitz and I are pessimistic for the same reason, I think.
Your cost of buying a house with borrowed money (assuming no pre-payments) is:
down payment + (mortgage payment * number of payments)
Rewriting this equation a little, you get
cost = down payment + (mortgage payment(price, interest rate, number of payments) * number of payments)
(i.e. mortgage payment is a function of price, interest rate, and number of payments)
The total cost can't change much unless people's incomes have grown. If you can afford to spend $500K nominal dollars over the next 25 years, then that's all you can spend.
What has happened in the past decade is that the total cost has stayed roughly constant (or increased a teeny bit faster than inflation). The PRICE has gone way up, but INTEREST RATE has gone way down (my parents thought 7.75% for a 5 year fixed rate mortgage was a sweet deal in 1996 - now it's what? 4.5%? less?) and NUMBER OF PAYMENTS has gone way up.
In other words, CHEAP DEBT over longer periods of time is enabling people to buy houses at increasing sticker prices. The total cost is roughly the same, maybe a teeny bit higher. But HOW you reach that cost is out of whack. And it's much risky, too: what you want as a buyer is LOW price, LOW number of payments, and high interest rate (if the price and the loan length is low, who cares? you'll pay the loan off quickly and get out of debt). That's what things were like in the 80s when people bought houses, lived really frugally for 2-4 years, and had the house paid off. Try doing that now.