Many times people will admit to irrational reasons (that's what I owe, that's how much money I need, that's just what I want for it, etc) but for most people, emotional decisions will beat out their rational mind.

Before the crash (2008) I read a lot about real estate investing, but put off getting into REI because I could tell that the market was irrational.

I'm sorry to rain on the parade here but the non-policy based optimism in this thread smacks a bit of the pre-bubble irrational exuberance of 2006.

A market bubble has certain characteristics- lack of sustainability, flow of cheap money and a certain mass recklessness (what Alan Greenspan termed "irrational exuberance") that won't always apply to more general peaks and troughs.

When people make the irrational choice of buying a home with an economic cost, that does not change the home into a liability, it means they made a sub optimal investing choice, like buying Lehman Bros in '07. 

This is because every single market in the world is made up of irrational actors. 

It conceals irrational thinking.One of my goals in screening is to try to identify applicants that may be suffering from some form of concealed mental illness.

The following drive housing prices:Disposable income - very high right nowPopulation increase - many areas are experiencing large population growthInterest rates - still lowInnovative mortgage products - not the same as 2008 but still lots of flexibilityAccess to credit - credit markets are wide openMortgage backed securities - we are in the golden age of capital with huge demandHousing service providers - there are huge personal incentives to push transactionsFinancial literacy - this will always cause irrational decisionsOn a different note, I recommend talking about things that matter with people who care. 

I used to live in the house and designed the kitchen so it's easy to become irrational when emotionally attached. 

While it does address the tax problem, it creates several other problems:your capital is tied for a yearyou become a landlords, with all related headachesthe tenant can destroy the property into which you just poured cash for rehaband moreI wouldn't expect a worker bee w2, self employed, wholesaler or flipper person  to relate to the irrational thought of tying up capital for a year.