In my recent study, Ten Ways to Wreck Your Retirement, I pointed out that relying too much on home equity for retirement income can spell trouble. A Wall Street Journal has reiterated the potential pitfalls of relying on a mortgage to make you rich.
Certainly in some markets, housing values have appreciated tremendously (at least they did for a while), but according to author Brett Arends, once the cost of borrowing, closing costs, and the paltry tax benefits are factored in, the rate of return on housing is – well – not exactly enough to make one rich. Arends points out that the annualized rate of return on housing since 1987 has been 4.1 percent. Compare that to the annualized return of 8.67 percent on the S&P 500 during the same time.
This does not mean that a pop-up camper should replace the single-family home as a dwelling of choice. But it might be a good use of money to forego the McMansion-style home as an investment vehicle and allocate those funds to other assets.