We just had some good friends, who really are good with money, go from a 130K home to a 500K home! And we live in a LCOL area. Granted he's a physician and I think they'll be fine, but you can see the stress that the decision has brought to them and even their marriage. I don't think they wanted to spend that much, but they were being more inflexible IMO than they should have been on the quality of the neighborhood and schools. And I think, even though he probably wouldn't admit it, that he was swayed by being a physician and the type of homes his peers have.
Like I said, they will be fine financially, but I think of how awesome it could have been for them if they had decided to buy a 300K home instead - how much more wealth they could have accumulated. They really needed to move, since they had six people in a house that was 1,100 sq feet. Once the younger kids had grown out of their toddler beds, I literally think the twin beds wouldn't have fit into their bedroom. But they didn't have to buy a 500K home. That was a choice.