Two years ago, there was an open house listed in the San Francisco Chronicle in my neighborhood for $1.8 million. It offered a cavernous 6,000 square feet, five bedrooms, a generous den I could use as a home office, a gourmet kitchen, and a spectacular view of the entire bay area. It was a slow Sunday, so I went to check it out.

The home offered every imaginable upgrade, including a four-car garage, elevator, and beveled glass windows in the 1,000-bottle temperature and humidity controlled wine cellar. Nobody cared. The building was deserted except for a lonely and depressed listing agent. The only visitors had been a handful of other real estate agents.

The seller gave up, pulled the listing, and rented it to a visiting Oracle executive for two years. I heard the agent got so fed up dealing with people in bad moods that she left the industry.

Last weekend, another open house was advertised for the same exact house. I thought I would drop by and see how the market had changed. There was not a parking spot to be found on the street. After quite a hike, I made it to the house, only to be told to wait in line to gain entry. The rooms were as crowded as a Tokyo subway car at rush hour. I briefly lost the kids in the shuffle. And this was at the new listing price of $3.5 million. Yikes!

I asked a younger, slimmer, better looking listing agent if there had been any interest. She answered abruptly that there had been three all-cash offers since the morning. Unless I wanted to pay over the asking price, I shouldn?t waist my time. Double yikes!

The bottom line of this little interchange is that the recovery in the residential real estate market is real, has legs, and will have a major positive impact on the US economy. The implications for the rest of us are huge.

The turnaround came much earlier than many analysts expected, and has proceeded with an amazing ferocity. Demographic data suggest this wasn?t supposed to happen until 2022, when most of the Baby Boomers have retired and a new generation of homebuyers appears. Home mortgages, especially jumbos, are still hard to get. The banks are still laboring under a stock of 5 million foreclosed homes. Some 20% of homeowners are still underwater on their mortgages and are unable to trade up or out.

It appears that the prospect of the end of the ultra low interest regime offsets all of this. The Fed is certainly putting the pedal to the metal, with 3.5% interest rates charged for 30-year mortgages. Everyone knows these are a once a century occurrence, hence the bubble 2.0. Buyers are ducking credit issues by paying all cash for 50% of recent closing. Hedge funds, private equity funds, and other long-term investors are still generating 30% of purchases, as they see this a one great big yield play.

We learned as much yesterday when the January S&P-Case Shiller data was released. It was a blowout report, with the 20-city index showing an eye popping 8.1% YOY gain in prices. This is three-month-old data, and February and March are expected to be stronger still.

The basket cases of yesterday are delivering the headiest gains, with Phoenix up +23.2%, San Francisco, +17.5%, and Las Vegas, +15.3%. The foreclosure capital of the United States only a year ago, Atlanta, showed a robust +13.4% improvement.

The residential real estate market is not without its shortcomings. First time homebuyers have been conspicuously absent, accounting for only 30% of new deals, instead of 60% during the last cycle. They are, no doubt, being shut out by credit issues. What will happen to the millions of homes that institutions bought, once their have substantial capital gains? My bet is that they sell to realize profits, capping further appreciation.

The snapback in new construction has been even more dramatic. Monthly new housing starts have soared from the low 300,000?s to 800,000 in the last three years, a jump of 167%. That?s still a fraction of the 2.2 million peak we saw in 2006. Surviving homebuilders like Lennar (LEN), Pulte Homes (PHM), and KB Homes (KBH) so dramatically shrank their cost basis during the dark days that they are unable to meet current demand.

The obvious benefit for the rest of us is the addition of 50-75 basis points to the US GDP growth rate this year. We?ll get a better read with a future GDP announcement, which could bring in a preliminary Q1 number as high as 3%. That will most likely take us to the Fed?s target of a headline unemployment rate of 6.5% sooner than later.

There is a greater advantage for we stock investors. Some two thirds of the home equity lost since the 2008 crash has been recovered. The total value of the US housing stock has bounced back from $10 trillion to $17 trillion. That creates a huge ?wealth effect? that steers more individual investors back into risk assets generally, and shares specifically. Should anyone be surprised that the Dow average is grinding to new all time highs every other day?

Not a day goes by when you don?t hear of shortages of workers in the building trades, such carpenters and plumbers. As a result, the shares of this sector have been the best market performers over the past 18 months, with some issues rising sevenfold. Whatever you do, don?t rush out and buy these stocks. They have run too far, too fast, and the risk/reward is terrible here. You missed it. I missed it.

Better just to bask in the glow of a home that it rising in value daily, and a retirement portfolio that is doing the same.

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