Many Americans are depending on their home for security in their retirement. But how well has real estate performed as a long term savings vehicle? As a recent Fidelity Research Institute Report points out, historically, real estate returns have been rather poor.

The Fidelity researchers examined long term real returns going back all the way to 1835. They then calculated the average returns over 5, 10, 20 and 30 years. They found that real estate performs worse than stocks, bonds and treasury bills. In fact, real estate closely tracks the real income growth. As such, if property prices are growing faster than income growth, it is a sure bet that property is overvalued.

If real estate offers such poor returns, then why is there is misconception that it is such a good investment? There are a couple of reasons for the real estate super-returns myth. First, people often just look at capital gains and largely ignore other real estate related costs; for example taxes, repairs and maintenance. Second, people often under-estimate the interest costs of long term debt; a 30 year loan does involve a lot of interest payments. Finally, people often confuse real and nominal growth. Six percent annual capital gains might seem like a healthy return, but if inflation is growing at 5 percent, then it is obviously a lot less impressive.

Certainly, during the last five years, returns were higher than historical averages. However, prices are now definitely heading south. If you haven't sold and started renting, stop counting up the retirement resources embedded in the value of your home. Insofar as that equity windfall existed, it is about to slip away.