Homeownership has for generations been the greatest source of net worth for many households and a consolation for seniors who may not have saved enough cash during their working years.
But a recent government report showing that the percentage of equity in American homes has fallen below 50 percent for the first time on record serves as a caution for people who might be relying too heavily on their house as a retirement nest egg.
"Using the equity in your home to support your retirement should be a last resort," said Chris Chaney, vice president of Fort Pitt Capital Group in Green Tree. "People who need this kind of debt to get through retirement may have a problem."
For those who draw comfort from the rising value of their homes when other forms of wealth accumulation have faltered, losing equity -- either though debt or lower home values -- can feel as if the proverbial rug has been pulled from the foundation of long-held beliefs about retirement planning.
The Federal Reserve recently reported that homeowners' portion of equity in their primary residences has slipped to 47.9 percent, marking the first time debt on U.S. homes has exceeded equity since the Fed started tracking the data in 1945.
Home equity percentages are expected to fall even more nationwide as declining real estate prices eat into the value of most people's single largest asset.
"We do not plan on our clients using their homes as an income source [during retirement]," said Tim Buggy, a retirement planning specialist at AXA Advisors, Downtown. "The reason for that is your home is an asset, but also a consumption good.
"If we sell our home we still need housing. We have to do something with that money to generate an income to provide for that housing or buy another place. It's hard just to use that asset for our retirement nest egg."
Even if a home appreciates greatly over the years, the only way for a homeowner to access that value is to either sell it, borrow against it or do a reverse mortgage, a deal in which the owner sells equity to a lender and in turn is allowed to stay in the house until they die.
While a reverse mortgage might be the answer for some people, it can be expensive and there are restrictions, such as the house must be fully paid for. The fees are high, and although the payout largely depends on the age of the homeowner, lenders will typically pay less than 50 percent of what the house is worth.
"To unlock home equity to fund retirement you must be prepared to move," said Michael D. Kresh, author of "You Can Afford to Retire."
Mr. Kresh said this may be a gut-wrenching decision in some cases because "some retirees are tied to their homes due to the presence of children and grandchildren. And in many parts of the country, downsizing is difficult due to the lack of affordable housing or high property tax for new purchases."
Rush Hodgin, of Hodgin & Associates, a private wealth advisory practice of Ameriprise Financial Services Inc. in McCandless, said he had found that when people downsize to a smaller home they reduce square footage and maintenance, but the smaller home often costs more.
"I do understand there are parts of the country where housing prices are increasing dramatically faster than in Pittsburgh, but I still don't think that it's a commonly used technique to have the home equity be part of your retirement portfolio," Mr. Hodgin said.
"That is mainly attributed to poor planning and not fully understanding the impact of that choice," he said. "I'm not saying it can't work. But I feel it's the exception to the rule."
Randy Grossman, a financial adviser for Edward Jones in Aspinwall, said Pittsburgh retirees counting on selling their homes and downsizing could end up trading dollars for dollars.
"The only way to gain is to sell in a hot market and move here," Mr. Grossman said. "That's a true gain.
"But for someone who lived 30 years in Western Pennsylvania it won't work. All that money can do is support their future housing requirements. It works out worse if they sell here and want to retire to a higher appreciating area."
The home equity decline is compounded by the many homeowners who may have stretched too far to buy expensive homes in recent years and then ended up pulling some of the equity out to pay for other purchases and expenses.
"One of the problems with that is these people hoping to retire are retiring with very, very large mortgages," said Stacy Francis, president of Francis Financial in New York. "They've really squeezed every cent out of their homes.
"It's going to bode some difficult times for these individuals when they find they can't make the payments on their mortgages and large home equity loans."
Ms. Francis said retirees saddled with mortgage debt and receiving less income would face more unexpected expenses. They will either have to go back to work, reduce their expenses or shift their portfolios to produce more income.
"It really adds up to one big ouch for these individuals," Ms. Francis said. "They are cash poor and real estate poor. That's a bad combination."
It seems, however, baby boomers have an insatiable appetite for real estate.
According to new research from Harris Interactive and the National Association of Realtors, 37 percent of boomers with household incomes of $100,000 and up say it is likely or extremely likely that they will purchase real estate within the next 12 months.
The danger in loading up on any one particular asset is ending up with an unbalanced portfolio.
"You can't bank on one asset class, whether it is stocks, bonds or real estate for your investment portfolio," said Alan Klayman, founder of MyIncomeStrategy.com in Philadelphia.
While real estate has done well over a long period of time, the problem is you have to sell the whole asset to realize a gain. That is not the case with stocks and bonds, which are liquid assets.
Mr. Klayman said in some communities in the Northeast there is a five-year supply of homes in the $2 million to $5 million range (assuming a sale a month for more than 60 homes.)
"Unfortunately, for people counting on a sale and purchase of a less expensive home as the majority of their nest egg ... it really is a tough time," Mr. Klayman said.
Relying on home equity for retirement was never a good idea to begin with, although it's been done for generations, said Michael Sichenzia, chief operating officer of Dynamic Consulting Enterprises, a firm that renegotiates mortgage debt for distressed owners, in Deerfield Beach, Fla.
"The fact that we've been doing this for years is not relevant," Mr. Sichenzia said. "It's just a bad habit, and bad habits are hard to get rid of.
"When it comes to retirement, investing this is even more important because bad habits have a way of catching up to you when you can least afford it."
Tim Grant can be reached at email@example.com or 412-263-1591.