Nothing else in this country has come to embody the American dream quite like home ownership. Not affluence, which few attain. Nor career success, which is difficult to measure. Marriage, family, higher education may all be nice ideals, but they are certainly not strictly American measures of fulfillment. Owning a home has come to be the way we define prosperity. It's a symbol of having arrived, of having grown up. But beyond that, homeownership has always been seen as intrinsic to wealth accumulation and retirement stability. The government has aggressively encouraged ownership through enterprises like Fannie Mae and Freddie Mac, and through low interest rates, especially after the dot-com bust a decade ago.

So given the level of importance and reverence we have historically placed on real estate, it is not surprising that an article published in The New York Times on August 22 raised more than a few eyebrows. Headlined, "Housing Fades as a Means to Build Wealth, Analysts Say," the gist of the article was that even with an eventual housing recovery, real estate would never again provide a "plump nest egg" for owners. "If the long term is grim, the short term is grimmer," the Times declared. Translation: Housing as an appreciating investment that will be your ticket to a comfortable retirement is likely dead. In its place is a new reality where a person's home will only keep up with inflation and return what the owner puts in each month, Stan Humphries, chief economist for the real estate site Zillow, told the Times.

And it's true that few will declare real estate to be strong right now. Although prices for single-family homes rose 4.2% in June from a year earlier according to the S&P Case-Shiller home price index, analysts credit the increase to a home-buyer tax credit that has now expired. The reality for real estate right now is that the short term indeed appears to be grim.

Yet, advisors and other experts who spoke to Financial Planning say that housing should not be disregarded as a component of wealth accumulation. What we're witnessing is just the downside of a cycle. For many Americans, a house remains their biggest asset. Furthermore, these assets will continue to be critical for people during retirement. (Some argue, however, that a less-complicated, less-costly method than a reverse mortgage is needed to deploy these assets.) If values look historically low right now, it's only because the highs during the housing bubble were a historic anomaly driven by Americans' irrational exuberance.

"Housing up to the bubble was never considered a flashy investment where you made a lot of money," says Alicia Munnell, director of the Center for Retirement Research at Boston College (CRR). "So I think we're back to normal. We're not in a new world. The unusual world was the bubble world."

CRASH COURSE

Dean Baker was one of the first economists to declare that the U.S. was in the midst of a housing bubble. In August 2002, Baker, a co-founder of the Washington, D.C.-based Center for Economic and Policy Research (CEPR), published a report called The Run-Up in Home Prices: Is it Real or is it Another Bubble? In it he compared the unprecedented run-up in housing prices to the unprecedented run-up in stock prices during the late 1990s. Four years later, in 2006, Baker predicted in another report that the bubble was due to burst, leading to a "severe recession" and "tens of millions of homeowners, who never imagined that house prices could fall, will likely face serious hardships."

More recently, Baker has turned his attention to how the collapse of the housing and stock markets have left many baby boomers facing a dire financial situation heading into retirement. In The Wealth of the Baby Boom Cohorts After the Collapse of the Housing Bubble, released in February 2009, Baker and fellow economist David Rosnick reported that the median household with a person between the age of 55 and 64 saw its net worth fall by almost 50% between 2004 and 2009, from $315,400 to $159,800, because of the collapse of the housing and stock markets. The study asserts that the loss of wealth will cause boomers to depend heavily on government insurance programs like Social Security and Medicare.

"[The collapse of the housing market is] going to be huge," for boomers nearing retirement, Baker says. "Most people were banking on the equity staying there, and in most cases for the home to keep rising in value. And that clearly has not happened. So you're looking at a situation where the vast majority of baby boomers have very little wealth."