It's logical or sane if you think capital investment options in New areas is going to dry up and existing assets are the best opportunity for preserving or growing your money.
How much would you spend on the house if you're only alternative is to watch your capital disappear
Maybe not 10%, but I don't think we will see deflation anytime soon so cash will always lose value. Sometimes faster sometimes slower.
Capital needs somewhere to go as long as money keeps being printed. If there is more capital than profitable investment opportunities, it will flow into housing.
As a thought experiment to illustrate the point, imagine a world where there are no investment opportunities and the only place to store value is cash or housing.
In this case, housing prices will continue to climb because money keeps being accumulated and there is no place to put it.
Of course this is a hyperbolic example, but I think our world is moving closer towards it as truly valuable Investments dry up. Certainly in the short term, and possibly in the longer term as well
How much would you spend on the house if you're only alternative is to watch your capital disappear