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There is a debate on whether housing has bottomed. Have we seen the last of the housing bubble or are we approaching one once again?

On one side we have people like Kyle Bass who are betting on a housing recovery. On the other side we have people like Peter Schiff who are predicting that house prices still have a way to go lower.

To see where housing prices will go we need to look at three fundamentals. The most important one is wages/income. If your monthly disposable income doesn't match with the house you are buying, you will not be able to pay off your house. The second factor is mortgage rates. If you need to pay an ever increasing higher interest, you will have difficulties paying off your house (at an adjustable rate mortgage). The last factor is savings. If you don't have a pool of savings, you can't make an adequate down payment for your house.

Let's analyze these 3 fundamentals.

First off, the disposable income of Americans has gone up a lot as compared with the housing prices (Chart 1). Considering the correlation between disposable income and housing prices, this means that housing prices should go up from here. As disposable income goes up, you will have more money available to buy a (more expensive) house.

Second, the mortgage rates are another factor and they are at an all-time low (Chart 2). If you need to pay a high interest, you will be less likely to be able to buy a house. As the Federal Reserve is now keeping mortgage rates low by buying all the mortgages till the end of 2013, I don't see an immediate rise in mortgage rates just yet and people will be able to pay off the interest easily.

Third, we can see that there is a huge amount of savings still available for investment (Chart 3). Since 2008, we had a spike in savings and this spike hasn't gone back to its historic average yet. 2009 really marked the end of the housing bubble and I don't see another housing bubble forming just yet.

Based on this analysis I think that investors can safely invest in the U.S. real estate market with the iShares Dow Jones US Real Estate ETF (IYR).

Source: Are We Witnessing Another Housing Bubble In The U.S.?