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 calledContrarian 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.
BIG NEWS FROM ONE OF THE WORLD'S MOST EXPLOSIVE SECTORS
Interesting news from the biotech sector: The PowerShares Biotech Fund (PBE) is holding its breakout.
Longtime DailyWealth readers know we follow the biotech space for one major reason: These stocks regularly go through enormous booms... which are good for hundreds of percent returns in a few short years. Investors just love to get behind the promise of miracle drugs and cancer cures.
Like all stock market sectors, biotechs were hammered in late 2008. But in mid-July, the PBE (a broad basket of biotech stocks) "broke out" to its highest high in nine months. The breakout took the PBE to $16 per share. And this week, solid earnings reports and takeover news confirmed the breakout and drove the fund north of $17.
Is this the start of another giant biotech run? We can't know the future. But all bull markets start with a breakout on top of a breakout, like the one you see below... so it's best to be long this budding uptrend.
Don't Forget to Look Down By Dan FerrisThursday, August 27, 2009
It's really difficult to know if stocks are overvalued or undervalued right now. The solution to this is simple, but almost impossible for most investors to execute...
One Legend's Secret to Beating the Government By Dr. Steve SjuggerudWednesday, August 26, 2009
In my career, I've been fortunate to meet many extraordinary investors. Eduardo is one of my favorites. He has survived and prospered through more government-debt pileups and busts than any big investor I'm aware of.
These Prices Are So Cheap, They're Stupid By Tom DysonTuesday, August 25, 2009
It appears the soft market is close to turning into a hard market. This is great news for the best quality insurance companies. They're about to earn higher prices... and enjoy a larger market share at the same time.
How to Join a Compound Interest Club By Tom DysonMonday, August 24, 2009
Compound Interest Clubs have no management fees, no performance fees, and they trade on the New York Stock Exchange. The minimum investment is one share.
