I believe that the concept of home ownership has fundamentally changed in the United States in the past 3 years. Homes have been transformed from a durable good into an asset class. Historically, a home has been a long lasting durable good. It functioned as a place of shelter, security, and comfort. Homes were purchased for the tangible benefits they provided the owner. Today homes are an asset class. People buy homes because they believe they will receive a return from owning one. Even when someone buy a home for the tangible benefits it provides they still fundamentally believe they can and will make money from owning it. This shift helps to explain why 40% of the homes purchased in 2004 were for second-home or investment purposes. It also explains why transaction volume has doubled in the last few years. You live in a home, but you trade an asset.
Homes are a perverted asset class. Unlike stocks, bonds, or even commercial real estate an occupied home produces no income. And in the hottest markets the income from renting a home does not cover the mortgage payment. Homes are not easily traded and have high transactions costs for doing so. But if enough people see their homes as investments, than homes become an asset class.
If homes are an asset they can lose money, a lot of money and many people can get hurt. If homes are an asset people are going to sell them just like they sell stocks or bonds when they depreciate. This is in sharp contrast to the past when people thought of their homes principally as a place to live and thus a downturn gave them no reason to exit, because a fall in financial value changed nothing about the tangible benefits a home provides (shelter, security, etc.). However, a fall in value changes a lot about the benefits an asset provides (returns). It will be very easy for the investors who bought 40% of homes last year to walk if home values fall, because they don't live in their assets.