The housing market makes my head spin

I've been looking for a house in the bay area and there are a few things that really bug me about it:

• The fees for everything seem excessive. 3% of a house's value seems VERY generous to the realtor for this area. Does a 750k house require so much more work that it warrants a 11k higher commission over a 375k condo?
• I have trouble believing housing values can go up much more. A number of my work friends are buying/looking for houses and it generally doesn't make sense unless there is 5-10% appreciation per year across 10 years. Unless people have huge amounts of cash to make 30-40% down payments from Google stock options, I have trouble seeing how buying housing can make sense.
  

Here's an interesting article from SFgate about a worker who earns $15k a year getting a sub-prime loan to buy a 750k house.

http://sfgate.com/cgi-bin/article.cgi?f=/g/a/2007/04/13/carollloyd.DTL