Struggling to find a house. Not sure what to do.

Hey all,

So I know there have probably been a lot of threads about the housing bubble in southern Ontario but I need to get some advice on what I should do.

Some background:

I'm currently living in the US and returning home to Canada and will be going to a smaller area 2 hours east of Toronto (I bet you could guess where and what I do by that). My income is roughly $120,000 (just me right now my wife is a teacher and hoping to get some supply teaching 2-3 days a week), we've managed to save about $120,000 for a DP might have more by the summer as I'm currently in a situation where I'm saving half my salary. We've also got about $30,000 in emergency fund no investment right now, however my job has a "forced savings savings plan" which could turn into a pension or a return of contributions depending on how long I do my current job. We've got 2 cars paid off and just had a kid. Not bad right?

We started looking at houses in the area and a 2 bedroom bungalow is selling for $650,000?!?!?! 3 bedrooms for $750,000??? All getting bidding wars. I've noticed builders in the area are renting brand new homes (I'm guessing to ride the wave of the market and sell later on for $100,000 more... that's just a guess). I'm actually from the area and have seen these houses built and sold for $400,000 a couple of years ago let alone 10 years ago.

So my question is do I just go for it and get the maximum mortgage on a house get into the market and eat KD for a couple of years or do I wait for this to cool down? I'm not even sure if we'll be able to afford something in 4-5 months if things keep going this way. The rental market is not really all the good either in the area and people are renting houses for $2000+ which would be pretty close to a mortgage payment. I feel like I may be in a catch 22. IDK Any advice would be great.