As a foreigner, I don't understand this attitude. Why would you want all your wealth to be invested in a single leveraged asset that's also depreciating, requires your constant attention and ties you to a single locale?
2. Buying a house is a form of forced savings. This can be useful because people are irrational, per Kahneman's Thinking, Fast and Slow.
3. Cultural brainwashing (I think this is the biggest factor).
My current landlord allows pretty much no modifications to anything, just recently cut down the only 2 (40+ year old) trees around the house (for insurance purposes apparently), and won't allow anything to be planted in the yard except for flowers in a garden. I want an actual vegetable garden, and I would've never cut down those two trees. All of this is on top of the financial aspects of actually owning the house and paying rent to contribute to an asset (which at least in my area is about 40% cheaper, sans maintenance and taxes) and when it's paid off, I don't have any more rent...
1) You don't pay rent. Once you own the place free and clear, it's yours and you always have a home.
2) While the house depreciates, property may may still appreciate, especially if you live in a nice area, and even more so if you own the land beneath you.
3) There are tax benefits to owning your own house.
4) When you start out, it's usually not that much wealth, since you're taking a loan on it, though it is highly leveraged. As you pay more of it down, if you're smart, you'll have diversified your assets, so it's not all in one spot.
Rest assured most people dont follow the laws they do know 100% of the time and better yet... No one knows 100% of the laws they are required to follow.
Assuming you can keep up with property taxes! :P Though I understand they can vary a lot from place to place.
To address some of your concerns:
- Time: It only depreciates if you buy at the top of the cycle and sell before it recovers it's value - assuming you're able to stay in a house long enough for the cycle to recover. Many people can't wait for cycles - when it's time to move, it's time to move. Don't buy if you're unsure about the future of your market. Definitely don't buy if you believe your market will _never_ go down. That's called irrational exuberance and the '07-08 crash was aided by that psychological non-sense.
- Money: Let's say you put 200k down into a house in SF and take out a 800k loan, so you pay 1M total for the house. If the market drops 10% over the next year, you've lost 100k in your downpayment. That sucks. Now let's say you waited 2 year from now when the market has cooled off, and you purchase the same home for 850k. You put your 200k down again, but this time, the home increases in value 10% over the next 2 years. Sounds like a better deal, right? Value is correlated to many things, but timing is one that cannot be ignored.
- All my money is locked into my house!!!!!: No, it really isn't. I don't understand why many people think this. It's called a HELOC, or Home Equity Line of Credit. You can get one for around 4% annual interest right now. You can take ~80% of your current principal in the house, and pull it out as needed through your HELOC. This is very common and a great way to use principal money as needed. So taking the same example as above, if you have ~250k in principal in your house after 1-2 years, you can use roughly 200k of that money (assuming you pay back your HELOC of course). Now if you're thinking...wait...that means I'd have 2 loans...we'll of course. But when you rent, you get to use 0% of that money for anything.
Housing, for most of us, is a long term investment - unless you just have millions lying under your mattress. Looking at things from a 1-3 year perspective is why so many people rent. Again, for some people that's their only option, but if you are fortunate to be able to plan for the 5-10-15 years down the road, you can really make housing work in your favor.
Just don't buy this year. Let things cool down :)
The real estate market as a general rule moves slower then the stock market (when it does crash in a day or a week). Timing the stock market is hard, much more doable with the real estate market.
Example Houston, clearly the area is losing oil and gas jobs which make a decent chunk of their economy and also drive commerce downstream locally (car sales, entertainment, etc...) but the house prices currently do not reflect that reality in Houston.
Though if you have a long-term fixed-rate mortgage, you are probably OK.
Also, unlike stocks, if housing falls, at least you get utility from it-- you live in it.
Finally, there are many neighborhoods in the US where the rental options are pretty limited. You need to buy to live a lot of places.
The real question is, how much money would you have made if all that equity was in the stock market? Sometimes that can be more than what rent would be.
See: every ten years.
At least with a house, even if the value goes down, you still have a home.
I'm not saying owning a home is a bad idea, just having 80%+ of your money in it.
Besides, it's the leverage. You can buy $625,500 of house with 2.5% down + a monthly payment with a ~4% vig. Nowhere else can you get that kind of money at that kind of rate with ~$16k down.
Then if you're smart you invest other money other places to diversify. You can live in house, unlike Vanguard funds. But you should have both.
Here is my nightmare scenario: I live in the Bay area and if I wanted to buy a single-family house, I'd be looking at $900K at a minimum (if you avoid the really run-down/dangerous areas of the city).
Let's say I have the down payment of 20%. That's $180K. I buy the house and I can swing the $6000 per month in PMI, utilities, maintenance, etc.
Then the market takes a dip of 20%. If you own a $200K home, the hit would be $40K. That would suck, but with a good paying job, you could handle it.
In SF, a 20% drop (still within the realm of possibility) means you just lost $200K (if you include the other costs of closing on the home). $200K would be 5+ years of savings down the tubes.
On the other hand, I agree that now you're underwater and if you're forced to sell you'd be in trouble. But if there was a risk you'd have to sell the house so soon, why would you buy it in the first place?
Even so, assuming your mortgage is fixed rate, your payments don't change regardless of the value of your home. Whether it's worth $1 today or $10MM today, it only matters what you paid. Like the other commenter said, it's a paper loss.
What I mean is, if I had $300k cash in the bank and I was renting an apartment I enjoyed, I'd be smarter to invest the $300k in a diversified portfolio than spend all of it on a single rental house and playing landlord.
Equally if I had $300k cash and nowhere to live, I might very well be better off buying a house than renting a home and buying the portfolio. A vast amount depends on individual circumstances and stage of life.
I see people stretch themselves with a mortgage, dumping every dollar they have in order to make up the down payment. A single-asset investment philosophy. Why do they do it? The only answer I can imagine is that risk of their home going down in value is low. I disagree the risk is that low.
Every market crash in the US has been follow by a even bigger boom.