by Archie M. Richards, Jr.
April 2, 2007

Yes, residential real estate has gotten cheaper. But use it only to meet your physical and emotional needs. As an investment, it's worse than stocks.

In the past, real estate has had spurts of appreciation, especially on the East and West Coasts. But according to home-finance corporation Freddie Mac, overall U.S. house prices over the last 30 years have climbed only a little over 6 percent a year. Stock prices have appreciated almost twice as fast, with lower costs.

Companies, which you can own via stocks, generate wealth. Your home consumes wealth. It protects you from the rain and cold, to be sure, but it costs more than you may think.

Borrowing your home equity to pay for cars and vacations is a path to poverty. If you take a trip to Orlando and pay it off when you settle your mortgage 30 years hence, it's time to, well, grow up.

Most people think it's better to own a home than to rent, right? Emotionally, it's good to feel that your home is truly yours. But from a financial point of view, think again. If you remain in the home for only 5-to-7 years, you're likely to be come out better investing the down payment in stocks and renting.

5-to-7 years isn't all that long. The average American moves every 7 years.

When you sell a home, it's great to finger a 6-figure check and compare it to your lower purchase price. But believe me; you've already spent that profit and then some. Here are some of the ways:

In buying the house, you pay title insurance, attorney fees, appraisal fees, and mortgage points.

All along, you pay interest big time. On a 30-year mortgage, you won't be paying more principal than interest for 20 years. Over the full 30 years, the interest will probably double the house cost.

Property taxes, homeowner's insurance, regular maintenance, and a couple of expensive repairs or improvements will also add up to more than the cost of the house. If you buy a home for $250,000, the total 30-year cost will probably total something like $850,000.

Plus a 6-percent commission and attorney fees when you sell.

If you improve a bathroom or the kitchen, the selling price of the house will be increased by only a portion of the cost. Other improvements probably won't add to the selling price at all.

But here are ways to save:

• Acquire an adjustable-rate mortgage. The initial interest is lower than that of a fixed-rate mortgage. Over time, I expect the rates to decline, saving you even more. Chapter 15 of my book, "Understanding Exchange-Traded Funds," explains why.

• If a bank offers you a choice between A) fewer points and a higher interest rate and B) more points and a lower interest rate, choose higher points and lower interest. Points are one-time costs, but the interest rate applies month after month. Do whatever you can to cut the rate.

• Add an extra amount to each mortgage payment. Let's say you have a 30-year mortgage of $200,000 with a fixed interest rate of 6.15 percent. Before other costs, the monthly payments amount to $1,218. At the end of 30 years, you'll have paid $239,000 in interest. But if you add $300 extra to each mortgage payment, you'll shave almost 12 years off the loan's duration and save $105,000 in interest - a nice piece of change.

• Avoid borrowing for repairs and improvements. Save 10 percent of the mortgage payment just for maintenance. If you're not a do-it-yourselfer, save more. For major repairs and improvements, set aside at least ½ of 1 percent of the home's value each year.