Buying a house when the market is overpriced

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Hello everyone! This is my first post on BiggerPockets and hope I can get a burning question answered. This developed from a difference in opinion I had with a friend about purchasing a home in a very hot market.  At the time I had little to no experience with real estate and since then I have come upon BiggerPockets and started to read as much as I can. I still haven't found the answer to this question and decided I should ask the forums!

I am from the Portland, Oregon area which is 'on fire' in some areas. My friend was hoping to buy a house close in to the downtown area where she worked. This area was very active with houses selling in one or two days, sometimes 30-40,000$ over asking price. She had a few houses where she put $30,000 over asking and still didn't get the house and some of these houses needed a ton of work.  She has since given up searching because there are so few houses available.

I thought it was a bad time to be buying a house as a first time homebuyer because the prices are the highest they have ever been (houses sold for 60k a decade or less ago were not selling for 300k).

My argument was that it would be a bad idea to buy a house in a hot market and obtain such a high mortgage as a first time home buyer. Would the house not eventually drop in value in the inevitable market fluctuation and she would be paying a mortgage that is more than the value of the house?

Her argument was that buying a house at any time is a good investment, even if the mortgage is almost beyond her capacity.  It didn't matter if the price was high or low, it was about location and owning her own home.

I am looking forward to some discussion on the topic. Thanks!

[Steve B.]

Your both wrong.  You explicit statement is correct; the Portland market is hot.  But your implicit assumption that prices will be lower at some future date is likely faulty.  The appreciation will likely slow and the price curve flatten but we are still the cheapest large city, house-price wise, on the west coast so demograohics and forced appreciation argue against absolute prices decreasing,  barring a systematic pullback ala 2008.

Your girlfriend is just speculating so good luck,  she has a reasonable chance of winning.