The big advantage to the buyer was (is) no personal liability and no decrease in borrowing capacity.  

You can find higher ROI (on paper) here and probably in other cities…but the probability of actually collecting rent significantly decreases.

Due to high premiums, expenses increase, and cap rates and cash flow potential decrease.

Unforeseeable things happen.

Small Multifamily is definitely the route to go hereCondos suck for HOA fees, they can change rules after you buy (increasing rates and not allowing rentals/decreasing rentals), SUPER uptight, etc.

As risk decreases, so does cash flow. 

We are trying to keep our PITI payment under my monthly, non-taxable housing allowance but the seller has dug their heels in and won't budge, if we were to agree to his price we would be roughly $150 over my monthly housing allowance for the rest of the year, next year with an allowance increase and tax decrease it would likely be under the allowance. 

That adds a substantial amount of debt to the propertyFor instance a $400,000 30 year term at 6.5% means a payment of $2,528 and total payback of $910,178 - do a loan mod and change it to 40 years it's $2,342 a month for a monthly decrease of $186 and total payback of $1,124,077 So it adds an additional $213,899 to the borrower's debt load How does that make sense? 

So, are some markets in the US seeing prices flatten and decrease by 1-2%, yes absolutely.

Keep in mind those providers are generally using Hard Money loans so there motivation is to fill it as quick as possible to decrease  their holding costs and human nature being human nature maybe not the best tenant gets placed because of this.