There is a difference between mortgage debt and credit card debt or student loans. You can't just "cash out" your student loan debt by selling the asset. You can usually do it with a house. Moreover, unlike a car, TV, etc, a house is typically an appreciating asset not a depreciating one.
In a way, mortgaging a house is like renting the home from the bank, but there is a key difference: you own any appreciation in the value of the home, not your landlord. Your mortgage payment is the same every year (and in real terms goes down over time because more of each payment becomes principal and because of inflation). Your apartment, meanwhile, gets more expensive every year. My rent in downtown Chicago has gone up 11% in three years.
Moreover, the mortgage interest and property tax deductions are among the only tax deductions available to higher-earning singles and couples. Your $2000 rent payment is not deductible, but $1500 of a new $2000 mortgage payment is deductible. Also, the portion of your rent payment that goes to paying property taxes is not deductible, but your property taxes are deductible. Depending on your tax bracket, this can be a lot of money.
Finally, buying a house is one of the only leveraged investments available to most people. Say you buy a $500k house with $100k down, at a low mortgage rate of 4.5% per year (mortgage rates are as low as 3.5% today). Say you're in a high tax bracket (= 33%). If your house appreciates 10% after two years, then after paying your interest your total return is 29% on your original $100k investment.
Now all of the math depends on the specifics of your situation. E.g. in Chicago property is pretty cheap relative to rent, so buying makes sense for more people than in places where rents are cheap relative to buying. The tax deductions are also much more valuable for people in higher tax brackets, particularly people who get hit with the AMT.
As an aside, it's inaccurate to say that all housing is characterized by a "bubble cycle." Housing prices in major metro areas increase in the long run because the amount of developable space in these areas remains fixed while population grows. This is unlike most commodities. The price or gold may fluctuate based on the discovery of deposits, but nobody is going to discover more land on Manhattan. This is not a rigid law of nature, of course... housing prices in Detroit collapsed when the city entered a death spiral of shrinkage, but something like that happens once a century. Even in this current housing bubble, most people in established metro areas are still up from where they were in 2000. The people who are underwater on their mortgages are mostly people who bought right before the bubble popped, people who refinanced, or people who bought in unestablished areas.