The recent boom in housing prices has put many retirees in a great position to cash in on their home equity after leaving the working world behind. It may also be prompting people still planning their retirements to expect that their "home sweet homes" will turn out to be a sweet retirement investment.

That may not be such a sure thing. As a recent Fidelity Research Institute Report points out, the historical record shows that relying on your home to do more than house you in retirement can be risky.

Most of the country has happily watched their real estate values and their equity climb in recent years, but real estate can suffer serious and long downturns. That may be especially true if your state or region sees its major industries shut down or its economy suffer. Housing can also be subject to volatile price cycles, especially in areas that take off in a boom.

Depending on when you purchase your home and when you decide to retire, an ill-timed bust can wipe out some or all of your equity. Of course, that's also the case with stock investments. One bad downturn can make your portfolio shrink significantly overnight.

With real estate, however, you don't have quite the same opportunity to move your investments to a less volatile place, like gradually moving your stock and mutual fund investments into more conservative investments as you near retirement.

Maybe more importantly, the report concludes, over the long run -- and over the really long run -- returns on residential real estate have lagged other investments.

The researchers examined two time frames. First, from 1963 through 2005, on a rolling basis over any five-year period, residential real estate returned 1.73% annually in inflation-adjusted terms. That beat out Treasury bills (1.44%), but it lagged bonds (3.18%) and stocks (5.84%).

The same proved true during that period for any 10-year time frame. Residential real estate's real returns reached 1.62% annually. That beat Treasury bills again (1.44%) but lagged bonds (3.33%) and stocks (6.47%).

If you're concerned that the last 40 or so years might not be a long enough horizon to see the trend fully, the researchers also looked at the really long record -- all the way back to 1835. Reach that far into the past and you'll find that residential real estate on average returned less than Treasury bills, bonds, and stocks.

Average Annual Real Returns

Residential Real Estate



Treasury Bills

5 Years





10 Years





20 Years





30 Years





These numbers offer a cautionary tale against relying on your home to not just house you but also feed you in retirement. If you're thinking about moving up to a bigger and better house because of its investment potential, your retirement interests may be better served by putting your extra money into other places.

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Stocks and their long-term trends aside, you may still consider tapping your home equity for retirement. If that's the case, the researchers also examined the pros and cons of various strategies for making your house pay. I'll follow up this article with another examining that part of the research.

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Fool contributor Mary Dalrymple does not own any stock mentioned in this article, and she welcomes your feedback.