I was not going to reply because a lot of good reasons have been given, but I do want to respond to Trulia Roger (yes, we love you, but we will still respond)
I totally agree with the only if the do your math and only do it if the numbers are right, but i do want to clarify the statement about buying ' NOW' in 2004, 5,6,' and got into trouble because of ARM resetting, foreclosure, ...etc.
I think that was caused more by the lending practice, creative financing and how those ideas were sold to clients and how dicipline and realistic the clients are, but not beacause whether this is a good time to buy or not for somebody or not.
I had one couple who actually bought at the height of the market. They were very conservative to start with. We looked at places but I knew they would not buy until they were O.K. with the payments, 30 year fix with 10% down (they had to sell a house out of town for the downpayment).
Well, after they talked to the mortgage broker about options, they did a complete turn around, went with 100% financing, ARM. To say that I was shocked, is an understatement. I asked them many times if that's what they really want to do, the answer was not only affirmative, they were very happy. For them, they have good jobs, stable income, expected to receive raises, no pre-payment penalty, and they want to stay in the same house for years. They are also diciplined enough to pay the mortgage plus.
I advised them that that the housing market might go down and they might want to wait. However, they were fine with that because they want to stay long term and they know that the market will come back - we are in Marin. They went into the deal completely educated. To say they might not be worried today, they are probably worried; but will they come out O.K and more in the long run? I have no doubt.
So the answer to whether 'we buy now or save more', really depends on your short term and long term goal, the house you are buying, your own financial stability and job outlook, the knowledge about the financial world and housing market in general and yes, you have to love the house and the area you are going to move to.