Bullish on real estate: A contrary view

"Amongst the evidence I see ...

#1. New home inventories are now at previous recession lows. This is not to say inventories of new homes can't fall lower. But as inventories fall, so does the supply of new homes, which is generally bullish for prices. Looked at another way, the bulk of the oversupply of new homes has largely been worked off.

#2. Existing home inventories have also fallen sharply. Although they have not plunged as low as one might expect from looking at this chart, they have not only peaked, but they have fallen to an area that should find support

"The inventory of new homes has fallen well below its 40-year average, to levels that have marked previous recession lows in inventories.

"Also note that due to foreclosures, short sales, and other workouts going on in the real estate market, existing home inventory data is likely to lag the bottom in real estate prices.

#3. Anecdotal evidence points to a pickup in demand. The Pending Home Sales Index, a leading indicator and a measure of home sales that will go to contract within two months, has risen for four months straight.

"Existing home sales have also been on the rise, increasing 6.2% since the start of the year. Meanwhile, the median sales price of existing homes has jumped almost 5% in the same period.

#4. Housing affordability has come back down to the CPI inflation trend line. I find this chart especially interesting. Courtesy of Investech Research, it's a picture of housing prices vs. inflation as defined by the (conservative) Consumer Price Index since 1980.

"The median family home price has collapsed back to the growth rate of inflation, per the CPI. Put another way, the median home price is back to inflation-adjusted levels, with the majority of the price deflation behind us.

"What's more, the National Association of Realtor's Housing Affordability Index is now in record territory, indicating that housing prices are now more affordable than they've been since this index was created in 1970.

#5. On an international basis, U.S. property prices are cheaper than they've been in at least 10 years. Consider the following: The U.S. median home price has fallen 21.3% - more than $56,000 - since its peak at $262,600 in March 2007.

"In terms of the international purchasing power of the dollar, which has declined precipitously, the median price of a single-family home has fallen more than 35% to levels last seen in 1998.

"That's due to the decline in the international purchasing power of the dollar since 2001, coupled with the decline in housing prices in dollar terms.

"In my view, the decline in the value of the dollar will become an important stabilizing factor in U.S. real estate prices. It means more foreign investors should soon be investing in U.S. property, bolstering demand and even pushing up prices.

"Indeed, based on my travels, particularly through Asia, and considering especially metropolitan areas and their suburbs in places such as Hong Kong, Singapore, Shanghai and even Bangkok - I would say that U.S. property prices now represent some of the best bargains on the planet.

"What about interest rates? Right now, they're historically low and a boon to the property market in the United States. But here's a little unconventional wisdom: Don't expect any rise in mortgage rates to kill off a recovery in U.S. property prices.

"Quite to the contrary, I would consider rising long-term interest rates bullish for U.S. property prices. Chief reason: Rising interest rates will likely set off a stampede of potential buyers and investors to get into real estate - before rates head higher.

"Indeed, historically the biggest bull markets in real estate have occurred in conjunction with rising mortgage rates, not declining rates.

"To play the recovery in property prices I would consider the ProShares Ultra Real Estate ETF (NYSE: URE), which tracks twice (200%) the daily performance of the Dow Jones U.S. Real Estate Index.

"Though leveraged and not a pure real estate play in the sense that it also includes commercial REITS in its holdings, I believe it's one of the better ways to play a turnaround in property prices."

Steven Halpern's TheStockAdvisors.com offers a free daily overview of the favorite stock picks and investment ideas from the nation's leading financial newsletter advisors.