One extreme downside of thinking of your home as an investment vehicle is how poorly it is diversified. It is almost exactly directly correlated to the local job market...and to macro trends like the MBS issues we saw in 2008.
This is what I cannot understand about people who advocate buying homes in the United States for small-time investors - how can you not see this? How does it make any sense to divert almost all of your cash flow into a single, massively leveraged, illiquid investment? Miss a few payments on your mortgage and you are totally wiped out (and without a place to live!). At least stocks can bounce back and maybe you can get 30% back on bad bonds. And no one is stopping you from holding cash or TIPS.
If you are wealthy and a house is a small part of your portfolio the impact of the possible downsides is qualitatively different, but as a small-time investor tying up most of my wealth into home ownership on the hope that "house prices always go up" (which really means treating the future generation as suckers that will pay inflated prices for your home) and that the risk of mortgage default does not exist does not make sense to me.
Stocks and bonds aren't any better anymore--the bottom could drop out again anytime and leave you with half or less of what you previously had.
We're in a crap storm of epic proportions in this country, but we avoid the reality of it.
That was my experience in Ann Arbor as well.
$1200 is really the minimum for a 2 bedroom apartment here. There are a few that are maybe $100 - $200 lower, but I wouldn't want to live there.
Until you have a 2007 collapse again (predicted by some to happen again soon), where you both lose your job and a massive amount in stocks. Savings have been at extremely low rates for a long period of time in the US.