The main problem, at least in my opinion based on not a whole lot of thought, is that a majority of homeowners seem to be looking for the absolute most home that they can afford. That, coupled with close to no down payment, simply drives up the prices for everyone.
I also find it amusing in this thread that on one hand, you're throwing away money when you rent. And, on the other hand, real estate is a very poor investment. Some sort of magic must occur between those two statements.
Regardless, it'll be decades, if ever, that we return to common sense. I'm inclined to think it'll never happen, because society has gone to too much instant gratification. And, most people in society aren't happy with what they have - they need to spend (waste) their money on the newest and latest gadgets. Once upon a time, a family of 4 would have a television in the living room. *Maybe* a 2nd black and white television in a bedroom. Now, their kids have to have 42" LCD televisions in their bedrooms, xboxes, playstations, every kid needs a smart phone, let's not forget the Ipad - oh wait, sell it and get the Ipad 2, and so on and so on.
No wonder there's so much resistance to saving money.