According to this WSJ.com article, The Housing Market's Dangers (free link):
One issue on which Republicans and Democrats agree is that more people should own their own home. It is part of President Bush's "ownership society" initiative. Homeownership has risen to a record 69% of all households, from 67.5% when Mr. Bush took office in 2001, despite persistent unemployment.
If Republicans and Democrats agree on something we should watch out. Why is it such a good thing for people to own their own home? We should let the free market decide if people prefer to own or rent. Renting has many advantages, most significantly the ability to move easily without having to deal with steep transactions costs associated with buying and selling a house. There is also less risk because you don't have to worry about the value of your home declining. And I love the covenience of having the apartment building's maintenance staff fix my broken sink while I'm at work!
Low interest rates get most of the credit, but Mr. Bush would like to nudge it along. His American Dream Downpayment Initiative, signed into law in 2003, offers as much as $200 million a year to subsidize first-time home buyers' down payments, especially for low-income and minority families. He has instructed his tax-reform panel to preserve tax breaks for homeowners. At the same time, he has tried to curtail rent subsidies.
Yet another wasteful government program spending the taxpayers' money based on a dubious social theory. And why do we need tax breaks for homeowners, a wealthier than average group that doesn't need a special tax benefit? Tax reform should be about simplifying the tax code and eliminating all of the complicated and unnecessary special tax breaks that make filling out a 1040 so time consuming.
But are these policies wise? Housing prices, adjusted for inflation, are up 36% since 1995, the steepest boom in at least 50 years, according to Dean Baker, co-director of the Center for Economic and Policy Research in Washington. "This is a particularly bad time to be promoting homeownership among young people," Mr. Baker told a media briefing last week. "A lot will see substantial losses in home value as a result of that bubble, which will be ending soon."
Since I don't own a home, I'm looking forward to the collapse of the housing bubble! Because there's no way I'll ever afford a house at these high prices unless I marry a rich husband (hmmm, that doesn't sound like such a bad idea).
But the point of the quoted paragraph, that a peak in housing prices is the worst time to promote home ownership, sounds like common sense to me.