Why do people buy homes?  In a context stretching prior to 2002, people bought homes mostly because they needed a place to live --- and buying a home provided stability (your landlord won't kick you out), and had some financial side benefits (gradual appreciation, tax deductions).

However, the paradigm of the American dream of home ownership shifted in the beginning of the 21st century when home values started to inflate by 10% - 50% per year in many markets.  All of a sudden people weren't just buying houses because they needed somewhere to live --- but also because it would be an incredible investment. 

This new paradigm can be paralyzing to buyers in today's market.  Certainly, people still need a place to live --- but now some buyers become hesitant and unable to act absent confidence that they will also have a strong financial return.  I don't fault any buyer for desiring a good return on a home buying investment --- but I don't believe that keeping this new expectation on the forefront of our decision making is sustainable.

Let me be more precise:

• I don't think it's wise for an otherwise qualified buyer to stay on the sidelines (and not buy a house) when the only reason why they're in that position is because they're concerned they might not see a 10% gain in the value of their home each year.
• I do think it's wise for an otherwise qualified buyer to examine the ways that a home's value could change in the short and long term future before making a decision to purchase.

Stated one other way, I don't blame someone for waiting to buy if they think a home's value might drop --- but if you aren't buying because you think you might only see a 3% per year increase in home value instead of 8%, I think you need to reign in your expectations.  The astronomical per-year "gains" in home values during this decade are not the new status quo --- they were an exception that we are not likely to see again.