Lew, Eric Englund stressed this most important point here on LRC: a house is a durable consumer good. However, not one person I know of (outside of self-educated skeptics, libertarians, or Austrians), be it a friend, co-worker, acquaintance, etc., gets it. A house is always and everywhere referred to as an "investment." This way, people can excuse away their oftentimes irresponsible, living-beyond-their-means housing purchase as something akin to a 401k contribution or gold coin purchase. If the house is an "investment," it must be considered saving rather than spending!
When I sat at lunch with several co-workers two weeks ago, talking about the housing depression in the Detroit suburbs, my very pointed and firm comment, "a house is not an investment; it is a durable consumer good," was met with shocked eyes (you're crazy!) and total silence.
My favorite comment outside of the "home as an investment" pronouncement is the one where people keep saying that home values "will go back up where they belong" in due time. So, they still don't get it that there was a credit bubble and there was a housing bubble and that home values were grossly inflated. They think the "abnormal" is now, with the crazed buying spree coming to an end, and spiraling housing prices. The bubble economy was perceived as "normal," or how things are generally going to be from here on out. People got so used to living like Kings on $60k per year, and having it all right now, they can't visualize a life of thrift, buying used housing (or heaven forbid, staying in the same house!), and making long-term financial plans. For now, they say, the market is just down, there's a lull in the action. It'll pick up again, and we'll get everything back that we had before.
Today I had a very interesting conversation with a Realtor. I had set an appointment to see a house that appears to be a tremendous bargain at the current (and recently marked-down) price. I noticed it appeared empty, so I asked, was it a foreclosure? It was a short sale, he said, like so many others that weren't foreclosures. He then told me that every single seller he has worked with this year has had to bring money to the table, meaning everyone owes more on their house than it is worth on the market.
