Houses are a great investment. The house I live in now cost 170k 4 years ago. The house next to us, which is only one story where ours it two, and on a smaller lot, sold for 360k.
Alot of the current buying spree is from the crash of the stockmarket. People see the stockmarket now as a risky market that is totally based on thealmost random popularity of any given stock. Because of this they see houses as real, viable things. They can see the value of the money they pay everyday.
Eventually people are going to realize that the RE market isn't all its cracked up to be and start investing in stocks. When this happens the value might drop, but if your going to stay there a long time, or own it and rent it out later, that will not matter because it will rise again. Though if you continued to rent and invested the money you whould otherwise use for your house payments and down payments into a percentage based investment plan, when the stock market started to rise again you could find yourself with a very nice portfolio and able to buy your dream house.
Either way, invest in RE, stocks, mutuals,or anything. Just DO NOT let your money sit in a bank doing nothing for you.