US Housing Market Finding Bottom?

Economy watchdog Tim Iacono touts Bill McBride’s blog, Calculated Risk, as a reliable resource for housing market predictions, and McBride’s latest post – “The Housing Bottom Is Here” – has Iacono’s attention. Iacono notes that McBride’s blog was one of the few that identified and provided warning for the 2004-05 housing bubble that lifted Southern California home prices only to watch them plummet, giving supposed credence to more current predictions. Much like McBride in his own blog, however, Iacono stops short of suggesting that he, McBride or anyone else can predict what will happen in today’s U.S. housing market. For more on this continue reading the following article from Tim Iacono.

While the debate about whether the U.S. housing market has hit bottom is certainly heating up, hopefully it won’t rise to the current temperature of the brouhaha over whether last Friday’s labor market report was good, bad, indifferent, or just an outright fabrication by the Obama administration in an increasingly contentious election year.

I don’t know about you, but I can’t tell the politics from the statistics when trying to make sense of last Friday’s monthly jobs report and, at this point, I don’t care anymore.

As for the housing market, none other than Bill McBride at the wildly popular Calculated Risk blog weighed in on the subject yesterday declaring The Housing Bottom Is Here, a view that you find out at the end of the article isn’t quite as strongly held as you might think from just reading the title.

Bill notes there are two housing markets – new home construction and existing home sales – and, while the former has clearly made a bottom, the latter is likely to do so next month, though he qualifies that prediction with words like “I think that house prices are close to a bottom” and there being “a reasonable chance that the bottom is here”.

Now, caveats notwithstanding, this is still a big deal since Calculated Risk isn’t just an ordinary offering out there in the blogosphere. This particular blog happened to be calling the US housing market a bubble back when few had an inkling of the trouble to come and, for that reason alone, his is an opinion worth listening to.

It was back in late-2004 and early-2005 that a few people in Southern California – one of the many “ground zeros” for the late, great housing bubble – started writing about the remarkable rise in home prices and how it could not be sustained.

Yours truly was one of them and I’ve learned much from Bill over the years.

I recall reading commentary by Bill and Mish over at Silicon Valley insider as they set about creating what are two of the most influential financial blogs in the country today, so, it’s not as if any of us are “Johnny-come-latelies”.

Another of the original housing bubble bloggers was Rich Toscano at Piggington.com and, as long as we’ve begun to gather data points, it’s worth noting that Rich is in the process of buying a home in the San Diego area, something he characterized as Jumping the Shark.

Recall that San Diego was ahead of the crowd, housing-bubble-wise, over last decade and, today, it’s certainly no Las Vegas, where home prices just keep falling month after month, year after year.

According to the latest data from Case-Shiller, San Diego home prices are four or five percent above their recession lows in early 2009, and, when factoring in the Federal Reserve’s freakishly low interest rates and the reality that, to most people, it’s not the house price, but the monthly payment that is most important, a home purchased there at this time would seem to make good sense.

Of course, my wife and I purchased a home here in Montana just over a year ago, so, actions normally speaking louder than words, you have a pretty good idea about how we feel about property prices in this part of the country.

And if you go a few hundred miles or so east of here to where the shale energy boom is underway in North Dakota, you’d think it’s 2005 again.

In the Bay area, there’s Patrick Killelea of Patrick.net fame who has yet to fall in line with some of the other capitulating 2005-era housing bubble bloggers and, given his proximity to what appears to be another inflating Silicon Valley tech bubble, I wouldn’t expect him to do so anytime soon.

It’s funny to think back to about 12 years ago when I was working in Southern California and was visited by co-workers from Northern California who told tall tales of run-of-the-mill 1,000 square foot homes selling for a half million dollars.

Little did we know that large portions of the rest of the country would experience that same phenomenon just a few years later. As it turns out, Northern California seems to get a new bubble every five years or so, something that makes it particularly hard to call a housing market bottom there due to the spill-over effect of these non-housing bubble bubbles.

I don’t know – conditions are different depending on where you are and, in most cases, national home price trends have little meaning for an individual contemplating a home purchase.

Surely, with a couple years of home price history now in the books, housing bubble spotter Dean Baker was right to buy a house near Washington D.C. a few years back since the market there seemed to make a bottom just as the freshly printed and borrowed money started gushing from the nation’s capital.

One thing is certain, I’d much rather be writing about whether the housing market has hit bottom than whether the labor market has turned a corner as the November elections draw nearer because that discussion has become way too toxic for my tastes.

This blog post was republished with permission from Tim Iacono.

US Housing Market Bottom Not Panacea

Many real estate forecasters tend to speak about the arrival of a bottom in the U.S. housing market as an answer to everyone’s woes, but a look to the past shows that may not be the case. Analyst Tim Iacono references economists Robert Shiller and Barry Ritholtz in a discussion about the dip in Los Angeles home prices in 1996. He notes that prices stayed low for four years following the dive, suggesting that any bottom that may come in 2012 will likely not be the answer everyone hopes it will be – at least in the near term. For more on this continue reading the following article from Tim Iacono.

Not surprisingly, I’m going to have to agree with both Yale Economist Robert Shiller in this Business Insider interview and Barry Ritholtz at his Big Picture blog in arguing that a housing bottom – if it does indeed arrive in 2012 – will prove disappointing for those expecting gains on their real estate investment in 2013 or 2014.

We happened to be living in Southern California at the time and had the good fortune to buy a house there in 1995, though, we were just looking for a place to live, not thinking of it as an investment.

I remember the price actually declined by another five percent or so in the year after we bought it and it wasn’t until five or six years later that we began to hear about rising home prices, a bit surprised to learn that the value of our place had increased by $100,000 or more.

But, for the first few years, you were better off not even thinking about home values.

Using the broad Los Angeles price index as an example, even if you had bought at the absolute bottom in February 1996, you’d have had less than a one percent gain a year later.

The index spent a full four years within five percent of the February 1996 low!

Anyone thinking that a housing market bottom in 2012 means that home prices will be higher next year or the year after that will probably be disappointed.

Moreover, given the size of the recent boom and the likelihood of the bust being of similar magnitude, I wouldn’t be surprised if home prices don’t post a substantive advance for the rest of the decade.

This blog post was republished with permission from Tim Iacono.

Housing Market Shows Signs of Life

New Commerce Department data reveal that housing starts fell 5% for the month of August, suggesting more bad news in the near term for construction and new-home growth in the U.S. housing market. The good news, however, is that permits were up 3.2%, which could indicate a small uptick in building for the coming months. Even so, construction levels remain 75% lower than during the housing boom seen in 2005, before the onset of the recession and the global financial crisis. For more on this continue reading the following article from Tim Iacono.

The Commerce Department reported(.pdf) that housing starts fell in August and permits for new construction rose, however, instead of showing the same old chart of how the residential construction has been dead and will likely continue to be that way for the foreseeable future, this approximation better expresses the current reality.

When looking at the actual data below, it’s clear to see that there’s not a whole lot of difference between the two charts, the only real question being if and when a zombie housing market will someday arise.

The official data is as follows. Housing starts fell 5.0 percent in August to an annual rate of 571,000 units and permits for new construction, a key leading indicator for the housing market, rose 3.2 percent to a 620,000 annual rate.

Current levels of home building activity in the U.S. represent a decline of about 75 percent from the highs in 2005 and remain near record lows for a data series that goes back a half century, one that is not adjusted for population growth.

This blog post was republished with permission from Tim Iacono.

Solving the Foreclosure Crisis: Should We Use the Band-aid Principle?

The foreclosure crisis – the record-breaking glut of foreclosed homes that began in 2006-2007 – has rocked the nation’s economy and littered entire city blocks with vacant and/or abandoned homes due to delinquent home loans. These foreclosures act like a black hole on the surrounding property values of nearby properties, further contributing to financial hardship and blighting entire communities.

Now, four years after the crisis kicked off, we are still dealing with a foreclosure market that is far from fading.

News released recently revealed that approximately 31% of all home sales in the second quarter of 2011 were foreclosures or short sales. Year over year, that represents a 7% increase. Additionally, the average loan in foreclosure has been delinquent for a mind-numbing 599 days. Factor in the well-documented trend of lenders putting a screeching halt to their foreclosure processes due to nasty legal fights that still aren’t over and you have a troubling foundation for the housing market.

This leads some to ask the question: Do we invoke the “Band-aid Principle”?

Solving the Foreclosure Crisis Slowly Vs. Quickly

We all know the analogy. If you have a Band-aid on a wound, do you pull it off slowly, or do you rip it off quickly and limit the pain to just a second or two?

Each philosophy has its advocates for the foreclosure crisis. Proponents of the first approach – keeping as many foreclosures from entering the market as possible through loan modification programs like HAMP and loan programs like EHLP while creating tough, anti-foreclosure legislation – point to the sheer number of underwater homes on the market and say that any solution needs to slow the impact of so many foreclosures so the fragile market doesn’t collapse further.

Opponents of this approach disagree, stating that it is far more important to get it over with quickly by processing foreclosures as rapidly as reasonably possible and remove these unproductive and burdensome properties from bank ledgers – so that banks, in turn, can resume residential lending to qualified applicants. The faster foreclosures are sold, they argue, the faster home prices can stabilize.

Where to Go From Here

The argument over solving the foreclosure crisis is more complicated than just whether or not to rip the Band-aid off. Even if loan modification programs work – and many believe they don’t – you still have 4.1 million loans either in foreclosure or seriously delinquent that you have to resolve.

One solution is to aggressively push serious principal loan modifications that essentially “reset”, to an extent, the value of a mortgage loan by cutting the principal owed on the balance. That plan has its merits – some kind of loan modification has to occur – but there is nothing to suggest that banks will participate unless forced.

What needs to happen is to speed up foreclosure processing so that more foreclosures can be sold as fast as possible – a variation of the Band-aid principle. Home loans valued at pre-bubble values are unsustainable, and as long as they persist, home values will suffer and it will be more difficult for homeowners and lenders alike.

One immediate step we can take to speed up these processes and unclog the blocked foreclosure pipeline is to resolve the foreclosure settlement that is currently mired down in squabbling over legal immunity from further lawsuits against four of the nation’s largest banks. While making sure foreclosures are conducted properly with the correct paperwork is vital – legally and morally – we can’t go to the extreme and believe that foreclosures should never happen.

A healthy market depends on the ability to correct deficiencies, and foreclosure is one tool to do just that. The Band-aid principle may be in effect after all, at least when it comes to dealing with foreclosures that are waiting in line.

This was a guest post by John E. Miller:

Miller is a Real Estate Professional who has spent the last 10 years writing for several magazines and online publications. Miller is a regular contributor to Businessinsider.com as well as being the team leader of Content Acquisition and Analysis of new business development for Foreclosure Deals, where he also serves as a real estate agent expert.

Report Shows Housing Starts Fall Flat

The Commerce Department has reported that housing starts fell 1.5% and permit applications fell 3.2%. The result is a slow crawl in new home construction that matches the historical three-year low that seems to be the new norm following the housing boom and subsequent recession. Economist Tim Iacono speculates that at the current rate Fannie Mae and Freddie Mac will become a nationwide landlord, collecting titles to foreclosed homes or buying them from struggling banks, with no new homes on the market to offset the balance of power. For more on this continue reading the following article from Tim Iacono.

You’d have to think that, at some point, the Commerce Department is going to lose interest in reporting the monthly housing starts data since, if the graphic below were an EKG, the patient would clearly be dead. Nonetheless, they push on, today’s report(.pdf) indicating that housing starts fell 1.5 percent to an annual rate of 604,000, right around the historically low average level of the last three years since the housing boom went decidedly bust.

Permits for new construction fell 3.2 percent to an annual rate of 597,000, but, nobody really cares. Of more interest to housing market observers these days is whether wards of the state Fannie Mae and Freddie Mac will continue to exist in their current form and if they might someday soon turn into the nation’s largest landlord, renting out the millions of foreclosed homes that they either already own or will take back in the years ahead.

This blog post was republished with permission from Tim Iacono.

House Prices in Southern California Slip Further

Southern California real estate prices are still falling due to tight credit, high unemployment and economic uncertainty. Read more about this in the full blog post from The Mess That Greenspan Made.

It’s been a while since I’ve looked at Southern California real estate prices and it looks as though things aren’t getting any better there, Jon Lansner at the Orange County Register filing this report on the latest findings from DataQuick.

There have been no mentions of DataQuick here at the new blog over the last year, but, at the old blog, a simple search shows a ton of them, most referencing Marshall Prentice who, in 2005, promised that “most or all of of those gains are here to stay." Ah… memories...

This post was republished with permission from The Mess That Greenspan Made.

Housing Starts Down 22.5%

Housing starts fell 22.5% in February compared to January, as homebuilders anticipated weak demand. Considering the millions of homes out there still waiting to be sold, this is good news for the resale market, however, it shows how little confidence homebuilders have in demand recovering any time soon. For more on this, read Tim Iacono's post below.

The Commerce Department reported(.pdf) that housing starts plunged 22.5 percent last month, down from an annual rate of 618,000 in January to just 479,000 in February, a level just 2,000 above the record low seen in early-2009 during the financial market crisis.


Permits for new construction also fell, down 8.2 percent from a rate of 563,000 to a new all-time low of 517,000, as the nation’s homebuilders continue to be challenged by weak demand, tighter lending standards, and a glut of unsold homes due to a new wave of foreclosures after last year’s “robo-signing” fiasco that temporarily stemmed the flow.

This post was republished with permission from The Mess That Greenspan Made.

Housing Market Showing Another Sign Of Recovery, But Can We Believe This Time?

New building permits were up considerably last month - typically a sign of good things for the housing market. However, it feels like we have been down this path before at various points the last couple years. Can we truly believe that the recovery is in full swing? James Picerno from The Capital Spectator tackles this topic in the following post.

The housing market has shown signs of recovery before, but to date it’s come to naught. Is there any reason to think that the latest rise in new building permits issued offers real hope this time? Unlikely, but the trend bears watching just the same.

New building permits ticked up sharply last month, the Census Bureau reports. The 16.7% rise in December is the highest monthly percentage increase in more than two years. Permits are considered a leading indicator that offers clues about the future. Permits, howver, aren’t a perfect measure of things to come. We’ve been here before, only to find disappointment. In June 2008, housing starts surged by nearly 19%. It turned out to be a statistical glitch, and the housing market resumed its descent in the months ahead.

But that was then. What’s changed since 2008? For one thing, the Great Recession isn’t raging as an all-out force of darkness. The blowback from the contraction still hobbles the housing market and other corners of the economy, but growth has a stronger footing, at least compared with 2008. Will that be enough to overcome the real estate’s markets various headwinds? Maybe, although it’s going to take a lot more digging to climb out of this hole. And even if permits have started to climb, that's only one statistic in an otherwise gloomy marketplace

As the chart above reminds, new housing starts continued to slump in December. In fact, starts continue to bounce around near all-time lows. This forward-looking measure of the housing market isn’t dead, but it’s still deep in slumber.

Some analysts say that housing is in the throes of an outright depression that will last for years. That’s probably going too far, but not by much. Nonetheless, the breadth of the headwinds in housing inspires the expectation that last month’s surge in newly issued permits is simply statistical noise rather than a sign of an impending turnaround.

“With sales still near record lows and a lot of unsold properties in the market, there’s very little reason for builders to add more homes to the supply,” Sal Guatieri, a senior economist at BMO Capital Markets, tells Bloomberg. “Housing remains a key downside risk to the economy.”

The challenge of housing is compounded by the still-weak growth in the labor market. Then again, compared with housing, it’s easier to be optimistic on the outlook for job creation. The Fed certainly is. According to the central bank’s Beige Book report released last week, “Labor markets appeared to be firming somewhat in most Districts, as some modest hiring beyond replacement was said to have occurred and/or was planned in a variety of sectors.”

Finding similarly optimistic observations for housing is quite a bit tougher these days, even after a five-year bear market in real estate. The best you can say with any confidence is that the housing correction appears to have stabilized, albeit at sharply lower levels compared with the pre-2006 era.

As for the upturn in permits, that’s encouraging, as far as it goes, but it’s going to take a lot more to convince the crowd that the housing market’s ready to grow again on a sustainable basis. Don’t hold your breath. With foreclosures still running high, job creation sluggish, and excess inventory keeping a lid on prices, this industry is still looking at a long, slow recovery—and that’s the optimistic view.

"We wouldn't be shocked to see home prices drop another 5% this year before starting to rebound," says Rick Sharga, a senior vice president at RealtyTrac via TheStreet.com. "Really, until you start to see the inventory levels start to become more manageable, it's going to be difficult to see the housing market come back appreciably."

This article was republished with permission from The Capital Spectator.

Housing Prices Are Not Simply A Function Of Supply And Demand

A recent report issued by Standard and Poor's asserts that the large quantity of delinquent or foreclosed properties on the market will likely undo any potential coming increases in housing prices. However the problem with this argument is that it is based on the assumption that price in the housing market is a function of supply when, in truth, selling price is a function of the amount of income available for borrowers to service their mortgage debt. See the following post by Sean O'Toole from Foreclosure Truth to learn more on this.

While I’ve previously written about the confusion around the term shadow inventory, it is now increasingly used to refer to properties that are delinquent, or in foreclosure, rather than unlisted bank owned homes. Standard & Poors recently posted a well written analysis of shadow inventory, and has jumped to the conclusion it will likely “undo U.S housing price gains”.

They estimate that the current backlog of distressed mortgages will take just under 3 years to clear. They call that estimate conservative… I think it is likely optimistic given that delinquency rates are still climbing. Still it is a reasonable guess. Here in CA we have one million homeowners who are already delinquent, and we seem to be clearing about 25-30k a month based on foreclosures and short sales (which are the only “solutions” that are actually clearing the distress by eliminating negative equity). Divide one million by 30k, and you come to the same 33 month conclusion they reach.

Another interesting part of the report deals with recently cured loans… those no longer delinquent, primarily due to loan modifications. They suggest that these should be included in calculations of shadow inventory, as they have had a nearly 70 percent rate of recidivism – in other words, most become delinquent again because the loan mod failed to address the core problem of negative equity. Seems like a reasonable conclusion to me.

Where I take some issue with Standard & Poors assessment is there conclusion that liquidation will lead to lower housing prices. They come to this conclusion based on the simple idea that an increase in supply will lower prices. There is some truth in that notion. For example we certainly have seen some pricing strength recently due to efforts to slow foreclosures which have clearly constrained supply, while at the same time demand has been stimulated with low interest rates and tax credits.

But this simple supply/demand theory of housing prices fails to adequately consider the fact that housing is highly leveraged, and that price is primarily a function of income and loan terms, and only secondarily supply and demand. Worse, this over-simplistic supply/demand model has led many to believe that foreclosures cause price declines, when in fact it is exactly the opposite… price declines cause foreclosure.

Note that the foreclosure crisis started in earnest in late 2006, however, price declines did not start until lenders removed the ridiculous loan products that enabled people to over pay in August of 2007. At that point we had a precipitous drop in price… not due to foreclosures, but instead due to the fact that people simply couldn’t afford the prices reached during the bubble without those loan products.

Foreclosures and housing supply grew rapidly during the price correction, but those who think the correction was due to either these foreclosures or the growing supply are terribly mistaken. Instead it was simply a correction back to reasonable prices, that buyers could afford based on their incomes and the more traditional loan products that remained available.

Unfortunately the belief that foreclosures and supply caused those declines remains all too common as yet again evidenced by the conclusion of this report. It is a belief that is delaying our recovery as government works to artificially constrain supply by slowing foreclosures, leaving homeowners stranded in prisons of debt, and buyers with little available inventory to choose from.

The reality is that there is a bottom to housing prices. People need a place to live and are willing to spend a certain portion of their income on housing to do so. Investors need to find returns, and there is a point where buying homes as an investment make sense. In many parts of California we’ve returned to those prices levels. And in those areas that have already corrected withholding supply won’t return prices to prior levels… people simply can’t afford it. And contrary to Standard & Poors’ analysis increasing supply is just as unlikely to cause further price declines… people need a place to live, and investors are too desperate for reasonable returns.

This post has been republished from Foreclosure Truth, a foreclosure news and analysis blog.

Putting The Increase In Building Permits Into Perspective

Although housing starts surged in November and new building permits increased in December, if you take a 30,000 foot view it is relatively insignificant. Tim Iacono points out that the current annual rate of permits issued is far below the previous lows in 1975 when adjusted for population. See the following from The Mess That Greenspan Made.

The Census Bureau reported(.pdf) that housing starts declined but permits for new construction surged during the month of December in what continues to be a difficult period for the home building industry as new home construction remains near record lows.



Housing starts fell 4.0 percent after jumping 10.7 percent the month prior while the number of permits issued, a leading indicator for home building activity, jumped 10.9 percent in December after rising 6.9 percent in November.

Anyone interpreting the surge in permits as a sign of recovery should be reminded that this is very much a case of "one is greater than zero" since, for housing starts and permits, the entire year of 2009 was spent in record low territory for a data series that began in 1959.

For example, the current annual rate of 653,000 for permits issued, down 71 percent from the 2005 high, is still below the pre-2008 record low of 709,000 set back in March of 1975. When adjusted for the increase in population over the last 34 years (from about 215 million to 310 million), the current level of permits issued is almost 50 percent below the 1975 low.

This post has been republished from Tim Iacono's blog, The Mess That Greenspan Made.

Can Housing Be Fixed Without Jobs?

An end to the first time home-buyer tax credit could result in a decline in the housing market, experts warn. However, can we expect a sustainable recovery in housing by using temporary measures rather than creating more jobs? See the following post from Expected Returns.

From Bloomberg, U.S. Economy: New home sales drop as end of tax credit looms:

Sales of new U.S. homes unexpectedly fell in September as the end of a tax credit for first-time homebuyers approached, highlighting the importance of government aid to the emerging economic recovery.

Purchases dropped 3.6 percent to a 402,000 annual pace that was lower than the most pessimistic economist’s, according to Commerce Department figures issued today in Washington. Other data showed orders fo climbed 1 percent in September, the fourth gain in the last six months.

The drop in sales “does raise some questions about where the housing market is going to be in six months, arguably without any more support,” said Michael Feroli, an economist at JPMorgan Chase & Co. in New York. “Whatever you think about the economy, it’s not going to be a straight line” toward recovery.

Are people still calling a bottom to this market? This is a sneak peek of what is going to happen once the government removes props from housing. Housing sales are still down year over year, and we're supposed to be in recovery mode. The ultimate driver of housing will be jobs, which we're still shedding, and lower housing prices, which the government won't allow to happen.

Tax Credits + MBS Purchases

“Much of the strength in the economy is due to temporary factors such as fiscal stimulus initiatives like the home- buyers credit,” said Dana Saporta, an economist at Stone & McCarthy Research in Skillman, New Jersey.

Fed policy makers meeting next week are likely to repeat their commitment to keeping interest rates low for an “extended period.” The Fed last month decided to slow purchases of $1.25 trillion in mortgage-backed securities while extending the end-date of the program by three months, to March 31.

Fed policy makers are obviously pushing on a string here when it comes to housing. Low interest rates are immaterial when banks refuse to refinance and people are unemployed. It won't be pretty for housing when there are no more buyers of mortgage-related debt, and foreclosures and distressed sales really start to hit the market.

This post has been republished from Moses Kim's blog, Expected Returns.

Why Fundamentals Of The Housing Market Are Ridiculously Strong

Dr. Steve Sjuggerud from Daily Wealth points out some keen insights about the fundamentals of the current housing market. He suggests that supply hasn't been this low is a long time, and yet housing is very affordable. These are some of the reasons that real estate could be one of the best places to put your money right now. Continue reading to learn more.

$800,000.

That's about what the median home in San Francisco sold for at the height of the boom three years ago. Then the bust came, and prices fell 45%, according to the Case-Shiller home price index.

But a funny thing has been happening lately... something people haven't really noticed...

Home prices in San Francisco actually bottomed in March. According to the Case-Shiller Index, they've been up every month since... up nearly 4% in the latest month.

On my side of the country in Florida, the same thing is happening. Again, people are almost refusing to notice... But for 11 consecutive months, home sales in Florida have INCREASED over the same period last year.

Meanwhile, homes in Florida are now ridiculously affordable.

The median home price in Florida is now $147,600. That's a mortgage payment of about $650 a month (at current mortgage rates with 20% down). The median household income in Florida is about $50,000, roughly $4,000 a month before tax. That's about 16% of your household income – way below any rules of thumb about how much to put toward a house.

From coast to coast, housing affordability is better than it's ever been, getting a big boost from two things: the housing bust and super-low mortgage interest rates. The pile of government incentives has helped, too.

As an investor, I'm seeing what I love... It's an ideal situation that's rare, but incredibly important if you can recognize it. It's when people's emotional opinions are clearly at odds with the reality of the numbers.

The numbers for housing are really great right now. But after three years of losses, people are sour on housing. Perfect!

Three years ago, we had the opposite situation... The numbers for housing were terrible. Housing was completely unaffordable, and builders were building at a frantic rate. But people were incredibly enthusiastic.

Today, the value is there. What will cause prices to climb again? When the supply of homes available for sale shrinks. It's Economics 101. And guess what? We're there...

Right now, fewer homes are available for sale than at any time in the last 40 years (adjusting the supply for the growth in the U.S. population). If I hadn't crunched the numbers myself, I wouldn't believe it. Take a look:

Economics 101: When the Supply Is Low, Prices Go Up



Even better, when you do the simplest, dumbest comparison – the price of homes versus the supply of homes – you get exactly what you'd expect: When the supply of homes gets low, home prices rise.

David Dreman agrees... In 1980, he literally wrote the book. It's called Contrarian Investment Strategies. In it, he recommended going heavily into stocks. In the current issue of Forbes magazine, Dreman recommends U.S. residential real estate:

If inflation hits hard, the chief culprit of the bear market – real estate – is likely to be one of the best investments in the years ahead. Buy a home if you don't already have one or a second home if you can afford one.

Time to buy a house. (Or two!)

This post has been republished from Daily Wealth, a contrarian investment analysis and advice site.