The same thing happens all too often with a home. It’s easy, and usually cheaper to pay rent. Let's look at people, even those that had good incomes up until the current recession. Once they're at retirement age you would think that their major asset is not their retirement account, but their home. They usually bought the home as a place to live and raise kids. They didn’t look at it as a financial asset and a diversification from the stock market, but that’s how it ended up.
When I was a Realtor, I would sell a fair number of homes for people at retirement or for estates. Most people ended up with a lot less money in their savings and investments than they expected, and with houses worth a lot more than they ever dreamed. The U.S. is still growing. Most good areas should improve in value long term. Steady, low monetary inflation is a standard way to reduce the impact of government debt. The government seems to be able to cause 2- 3% inflation annually without much complaining. Add in a 3% real long term economic growth rate, and they can inflate the debt 5 - 6% annually without increasing it’s proportion of GDP without it . Similar gains could be possible in home prices.
Here's another example. A friend had a good job with company shares as a benefit. His company stock kept going up, along with his salary. The main assets were the company stock in his retirement plan and his home. I suggested that he sell some shares, and buy into an apartment building. He complained about every rise in the stock that he missed, until the stock tanked, and the apartment building soared. Alas, he was laid off shortly thereafter, but retired in comfort, thanks to the apartments.
At 2% inflation a house will double in 36 years. At 3% inflation, it will double in 24 years. Remember, the first $500,000 for a couple is tax free. $250,000 for single.
If you are in a state like New Jersey or New York that has judicial foreclosures, you will be personally liable in a foreclosure. If you are in a state like California which has non-judicial foreclosures, it is like having a one way option on the real estate market. If we hit severe real estate deflation, you give it back to the bank because you “can’t afford it”. You get a black mark on your credit, and in 2 years your are eligible to get another insured mortgage.
If you rent, build in the cost of moving every few years. Owners change their minds about renting and sell. Nationally, the average tenant moves every 2 years.