One example is a house I was looking to rent recently: it sold this summer for $580k. I don't know why just months after buying it the owner decided to turn around and rent it out, but he is, and the asking rent is $2400/mo. 2.4x12/580 = 5%. If you lived in the nearly identical house across the street, and thought that there was even a moderate possibility of a housing crash, why wouldn't you sell and move in there (or try to sell to an "investor" who would rent your house back to you)? You can probably get 5% on your money, and have none of the risk -- even with your 3% figure as the opportunity cost, there's easily another 2% in property taxes and maintenance that you have to pay as an owner.
But maybe your area isn't as over-priced. Maybe the supply of rentals is poor so you can't do an apples-to-apples comparison. Maybe your dogs are violently destructive (or look that way in a landlord's eyes) so you can't get a rental... That doesn't mean it isn't an exercise worth going through for others.
Well, since you have a paid-off house and intend to stay there, the fluctuations in the RE market are just paper gains and losses to you anyway, so you can probably ignore them without much risk of impacting your life. But that's not really Garth's target audience. It's the people who bought recently, the young couples who bought a tiny condo with 5% down, but who want to be outta there before junior #2 arrives in 5 years -- if the market turns down on them they could be in negative equity, which totally defeats the point of buying young and "getting on the property ladder". It's also the boomers who plan on selling their overly-large houses after the kids leave, and are counting on some of that recent appreciation to help fund their retirements: if they want to avoid losing it all in a downturn, they're better selling now and renting, and possibly buying their more modest retirement home after the correction.What I am saying is the USE of the asset in the case of a primary residence is much more important than fluctuations in the Real Estate market.My house has doubled but even if it were worth half what I paid it it would keep me just as dry.
And even for someone in your situation, it's hard to ignore the upside: if your $300k house (which is quite cheap by Toronto standards) were looking at declining to $210k (a 30% drop) in the next few years, you might be looking at $30k in costs to sell and move, and then you'd have to pay rent for a few years -- but that might be cost-neutral -- then after the crash hits you can buy back in, and are $60k richer for it (tax free). Or you could move out of your admittedly crappy neighbourhood into a nicer one, once the prices in the nicer one come down to $270k. The use is the same -- a home to live in, but by working the fluctuations you can get some additional uses too. The question is how certain are you that a correction will take place, and how big will it be? Obviously Garth is quite certain, and believes that the magnitude will be at least 15%, in which case it's hardly retarded advice.