Forget stocks. Don’t bet on gold. After four years of plunging home prices, the most attractive asset class in America is housing.

From his wide-rimmed cowboy hat to his roper boots, Mike Castleman fits moviedom’s image of the lanky Texas rancher. On a recent March evening, Castleman is feeding cattle biscuits to his two pet longhorn steers, Big Buddy and Little Buddy, on his 460-acre Bar Ten Creek Ranch in Dripping Springs, a hamlet outside Austin in the Texas Hill Country. The spread is a medley of meandering streams, craggy cliffs, and centuries-old oaks. But even in this pastoral setting, his mind keeps returning to a subject he knows as well as any expert around: the housing market. “I’m a dirt-road economist who sees what’s happening on the ground, and in 35 years I’ve never seen a shortage of new construction like the one I’m seeing today,” declares Castleman, 70, now offering a biscuit to his miniature donkey Thumper. “The talking heads who are down on real estate will hate to hear this, but America needs to build a lot more houses. And in most markets the price of new homes is fixin’ to rise, not fall.”

Castleman is in a unique position to know. As the founder and CEO of a company called Metrostudy, he’s spent more than three decades tracking real-time data on the country’s inventory of new homes….

…Today Castleman is witnessing an extraordinary reversal of the new-home glut that helped sink prices just a few years ago. In the 41 cities Metrostudy covers, a total of 78,000 houses are now either vacant and for sale, or under construction. That’s less than one-fourth of the 343,000 units in those two categories at the peak of the frenzy in mid-2006, and well below the level of a decade ago. “If we had anything like normal levels of buying, those houses would sell in 2½ months,” says Castleman. “We’d see an incredible shortage. And that’s where we’re heading.”

To see where real estate is truly headed, it’s critical to keep your eye firmly on the fundamentals that, over time, always determine the course of prices and construction. During the last decade’s historic run-up in prices, Fortune repeatedly warned that things were moving too fast. In a cover story titled “Is the Housing Boom Over?,” this writer’s analysis found that the basic forces that govern the market — the cost of owning vs. renting and the level of new construction — were in bubble territory. Eventually reality set in, and prices plummeted. Our current view focuses on those same fundamentals — only now they’re pointing in the opposite direction.

So let’s state it simply and forcibly: Housing is back.

Excerpted from

Real estate: It’s time to buy again

Posted by Shawn Tully, senior editor-at-large

March 28, 2011 5:00 am

Read the full article:

http://finance.fortune.cnn.com/2011/03/28/real-estate-its-time-to-buy-again/

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