It’s been a tough market for those who bought homes circa 2005 and 2006, at the very peak of the housing real estate bubble that would eventually decimate, multiple times over, those who thought they could flip a quick profit or generate wealth through a longer term asset. Times were booming, money was cheap, prices were rising, the population was growing and land was a finite resource (unless you happened to be in Dubai, where the Sheikhs were busy building artificial islands).

From the peak through today we’ve seen prices of real estate collapse in excess of 30%, and for many analysts, the recent spate of better-than-horrible real estate numbers suggests that we may be on the mend.

The Wall Street Journal writes Why 2011 May Be the End of the Housing Crash, suggesting that we may have seen the worst of it and providing several indicators in support:

Housing is the most affordable it has been in decades, according to analysts at Moody’s Analytics. They don’t just look at house prices. They also look at incomes.

Nationally, the cost of a house is the equivalent of about 19 months of total pay for an average family, the lowest level in 35 years. Prices usually average close to two years’ pay, although that varies nationally.

…

Here’s another sign the market is nearing a bottom: Investors have started to buy up houses and condos, in some instances paying entirely in cash. That’s a far cry from the heady bubble days when borrowed money seemed the key to riches. The bubble-era speculators who got burned tended to buy at the peak and borrowed heavily to do so. When the crash came, they quickly saw their wealth erased.

…It’s a sign that these investors are betting on a rebound. Investors buying at current prices are looking for deals, or so-called bottom fishing. They typically like to pay entirely in cash (or with a relatively small loan) to speed up transactions. That can be vital for an investor wishing to lock in a deal fast.

While one simply can’t argue with the notion that house prices are down and compared to four years ago are more affordable today, one must include the cost of living within the analysis of house prices vs. incomes. In the microcosm of the US dollar and housing prices, the decline in housing has far outpaced that of the dollar, so your dollar today buys much more house. However, that same dollar has been absolutely destroyed since 2002, losing 35% of its value against a basket of international currencies. The ridiculousness of comparing one fiat currency to another aside, the trend overall against most global assets versus the dollar is that things are getting much more expensive. Even if housing prices were to stabilize right now, you still have the issue of food, energy, and clothing seeing significant price increases over recent years – and those don’t seem to be headed the way of real estate any time soon.

Not counting the 43 million who depend on the government for food every month and the millions who can’t find a job, those who are gainfully employed will still have a hard time pulling the trigger on a new home buy. Rising prices of essential goods is one reason for the hesitation, as is the possibility of a layoff coming out of nowhere.

Cash sales have, indeed, been a growing part of the real estate market. But is this reason to rejoice? We suspect that these cash purchases are happening on distressed homes, foreclosed homes and tax sales. The price collapse in this particular subset of real estate is likely significantly higher than what we might consider a typical home sale.

The unemployment situation in this country is deteriorating, prices are rising, and taxes can be expected to rise as governments continue to hit budget brick walls. For these reasons and a host of others which we outlined in Economy “Stabilized” as Real Estate Prices Continue to Drop, Foreclosures Mount, we find it somewhat premature to suggest that this is the end of the real estate crash.

But is it time to buy?

“Pricing is down so much in some markets that when you analyze renting versus owning it makes much more sense to own,” says Michael Larson, a real-estate analyst at Weiss Research in Jupiter, Fla.

It is definitely bullish. But what about timing?

“Housing prices will probably bottom in 2011,” says Scott Simon, a managing director at money-management firm Pimco in Newport Beach, Calif. He foresaw the housing crash, helping his firm dodge losses that plagued Wall Street.

Mr. Simon says prices might dip another 5%. Still, in the scheme of things, that’s small. Consider this: In some markets, home prices have fallen by half or more since 2006.

Will real estate prices continue to drop? We think so. Will it stop at 5%? Maybe, but remember that we’re dealing with a very volatile currency market, which means that while prices of homes may stop declining, perhaps even start rising, that valuation must be bounced up against other assets – not just the US dollar.

For the average American, if the price of a home were to stabilize at one price for several years, but the cost of rice, gas and electricity go up 50% over the same time frame, then the effect on home purchases will be negative – simply put, fewer people would be able to purchase a home at the same price point as before the rise in other prices. This hypothetical example of valuation also fails to account for the free market effect of prices forcefully going down simply because there are no buyers of means to make the purchases.

Nonetheless, is it time to get out there and buy?

This is an issue we addressed in some detail in a recent commentary Inflation, Stock Markets, Gold, Real Estate and The End Game. It’s a value-based question. What is value to you now, what will it be several years from now, and what are your payment capabilities? We’ll repeat some key points from our previous article below:

If you are looking to flip properties as a business like many did leading up to the real estate detonation, you’ll be hard pressed to generate significant revenue. But if you have other intentions and goals, it might not be a bad time to consider purchasing.

Farmland, for example, is a real estate asset that produces commodities. Unlike a suburban home with no real possibility for production unless you’re willing to do the work, farmland allows a family to generate their own food, as well as their own energy – essentially eliminating the necessity of the ‘grid’ on which most people depend. Not only that, but outside of major cities you’ve got an extra layer of security in the event of war, economic collapse or other disaster.

Additionally, if the US dollar continues to be debased, which it will given historic trends, we can expect interest rates on homes to start rising – significantly. In the 1980′s rates exceeded 15% in some cases. The following example demonstrates why it might not be a bad time to buy now if you expect interest rates to rise:

via Mortgage Calculator

Home Price: $200,000
Current Rate: About 5%
Monthly Payment: $1073.00
Total Payments Over 30 Years: $386,500

or, waiting until rates rise and prices decline 30%:

Home Price: $140,000
Rate: 10%
Monthly Payment: $1228.00
Total Payment over 30 Years: $442,000

Unless you plan on paying in cash after the next leg down in real estate, it may be to your benefit to buy now and lock in a decent interest rate, even if you expect a massive decline in prices. Additionally, you may end up paying less simply because of inflation and (hopefully) a future wage adjustment or earnings increase.

For some, buying a home now makes sense. Even if you don’t plan on purchasing a home that will produce food or alternative energy, it may still make sense to buy at today’s lower interest rates rather than continuing to rent, especially when one considers what rents may cost if interest rates do exceed 10%.

We warn our readers, however, that any real estate purchases should be considered a long-term hold. Don’t plan on flipping, or even selling, for years.

Japan’s real estate boom, like ours, was predicated on cheap money and finite land. Inflation adjusted, the decline over the last 20 years has been roughly 75%. That’s a big number. Humanity’s cognitive dissonance response, especially in the Realtor community, will ensure that most analysts and experts avoid telling us how bad it can really get.

While we don’t have a crystal ball, we do have history books and if the real estate markets of today are anything like that of the Great Depression, then we have much farther to go.

According to analysis performed Martin Armstrong of Princeton Economics, during the Great Depression real estate prices in the farming sector fell from $2 per acre to 30 cents per acre. That’s a whopping 85% drop.

But Japan isn’t America and this isn’t the Great Depression, right? So, just disregard everything you’ve read above this sentence.