There is an upper limit to how big a percentage of their income people will be willing to spend on fancy housing. In the past, people were willing to plop down a big chunk, in the expectation that housing prices would increase faster than inflation, and that their income would rise and make their mortgage payments a smaller part of their future income
Once those expectations are shattered, the bubble will burst. People will have a choice between spending 40% of their net income on a house in the suburbs, or getting an apartment and having more disposable income. An increasing number of people will forego the suburban house
A lot of communities have artificially propped up real-estate prices by enacting legislation that limits the amount of available housing, whether by restricting development, or the kinds of houses that can be built, or the minimum size lots. This will only work in the short term. In the long term, people and businesses will move to where real-estate prices are reasonable
I would phrase it differently. Housing has been the primary entry point of inflation into the economy due to actions of the GSE money pumps. These privileged enterprises now constitute a parallel financial system and unlike the banks have no multiplier restrictions (I believe Fannie is at 50 to 1 debt to equity right now). The inflation has already occured in the housing sector and is now spreading to the rest of the economy.