I think most people are better off just renting until this madness blows over. God knows I am much better off for having rented and plowing my money into investments for about a decade before I bought my place.
Houses keep up with inflation over the long run, while stocks have returned ~ 7% after inflation. If housing is an investment, it's a poor one, and you should invest only what is absolutely required to have what you need not want.
I think you are committing the error I am trying to point out: don’t treat your living requirements 100% as an investment.
That said, your living choice always has an investment decision component, because most of us need one roof over our head. If renting, you are shorting the home ownership market (a renter owns zero bedrooms but needs one bedroom). Making the decision to rent is either (a) betting against the real estate market (shorting), or (b) betting that one can make better returns through other investments.
The deeper point is that we should try to optimise for our internal joy, and nobody should measure their success only in metric dollars.
If you are young it can be perfectly sensible to bid far more for a home you love. An “overpayment” is paid over many years of happy living, which can be a worthwhile trade.
Living in a cheap economically sensible shithole for too many years is a bad idea, unless you have no other choice financially. The problem is making sure you buy a home that makes you happy. Overcapitalisation is sensible if you can afford it, and if you truely do get valuable pleasure from living in your home.
Yes, do take care to avoid the mistake of buying a home and getting chained into a situation you end up hating.