I think anyone with a brain knew about the housing bubble. Prices were rising too high, people were buying more than they could afford, because banks allowed them to.
I know I was saying "this market ain't gonna stay like this. Some of these people are gonna be screwed"
I got in a HUGE fight with my girlfriend back in 2006 over this very issue. We were house-shopping, and between the two of us we were doing dang well for income... DINKs to the max.
Come across some 3000+sq-ft monstrosity with 6 bedrooms, home offices, living room, family room, sitting room, dining room, billiards room (pet giraffe room, lion feeding room, elephant exercise track in the backyard, etc
) and it was $425K.
It was me, her, and two mid-sized dogs. WAY too much house. And the price tag was terrifying. It was a lot of house, but it was in the northwest sticks of the Phoenix metro area and a hell of a commute for her (half-a-hell of a commute for me).
I put my foot down on it, and I limited all of our searches from that point to houses under $300k. I thought that was the limit I was willing to finance considering the beginnings of a down-trend in market prices, and a gut feeling that it was all going to swoosh down the drain pretty soon anyways.
I think that's one of the things that tore that relationship apart, but I'm glad I put my foot down in the long run. I now have a great house for only $160k financed, the mortgage payment isn't any worse than rent for a nice 2 bedroom apartment with attached garage, and I'm not terribly worried about the liquidity of the house.