There had been a lot of activities in the SF bay area in purchasing condos, townhouses and single-family homes, partially to take advantage of the low interest loans and the relative drop in property prices.
Despite all the excitement, I think it is still NOT the right time to buy houses. I will explain my thesis given each of the likely state of the U.S. economic situation.
Case 0) with 50% probability, we will have a mild but prolonged deflation. This is the most likely outcome given the current economic situation -- the debt bubble still requires time to deflate. The government's effort to smooth the process of deleveraging may have helped the current economic sentiment, but such effort had the side effect of prolonging the time it takes for asset price to drop to pre-bubble level. Most people would agree that it is not ideal to own a property in a deflatory period, given the cost and tax associated with the maintaince of a property.
case 1) with 25% probability, we will see deflation ending, leading to mild inflation. Although this is a welcoming scenorio for the home owners, there is a danger that inflation (food, energy and other) will climb faster than the housing price in the next 2 - 5 years. U.S. government is likely to tighten the interest rate to curb inflation to make creditors (China, etc) happy, and this can depress real estate market.
case 2) with 10% probability, we will see higher than expected inflation. This makes mortage cheaper to pay, but danger looms -- a) the U.S. government will act agressively to curb inflation, leading to higher interest rate, and depressing real estate market. or b) the U.S. government puts employement ahead of price-stability, and not work aggressively towards curbing inflation. In the later case, dollar will likely to depreciate and commodity price increases. Also, the prime rate is likely to be higher than the Fed rate, leading to perhaps only a mild increase of housing price.
(There are other cases that I am not expanding at this moment, including China continues to play the sucker in this area, supplying cheap loans to the U.S. to prop the dollar even in an inflatory environment. In this situation, owning a house maybe a good thing to do, at the expense of the Chinese savers).
I am not exactly sold on buying commodity at this moment, but commidity does seem a better investment option than houses / housing ETF at this moment.