Let me put it to you another way: if homebuyers didn't have access to cheap leverage, then a stock market index fund would appear much more appealing than house as an investment. But when homebuyers have access to cheap leverage (and stock investors don't), the balance tips more in favor of home buying. And when I say "more in favor", I mean when compared to no leverage.

Perhaps you're making an argument that even with leverage, most people would be better off investing in the stock market rather than real estate. And perhaps that is true. But leverage does tip the balance in favor of real estate.