Housing affordability in America is the best it’s ever been. But tight lending conditions make it difficult for buyers to take advantage of the good conditions. But for investors with cash,there’s never been a better time to buy. And buyer investment activity is picking up accounting for a nearly a third of all purchases in the last quarter of 2011.

For investors, the lure of rising rental income is a strong motivator. Rents rose at more than a 3 percent annualized rate in the third quarter of 2011 according to recent government data. However private data sources imply even faster rent growth.

And there is very little reason to believe this rent growth will slow, considering the favourable demographics of a rising number of young adults over the next 20 years, a high number of owners of foreclosed homes who can’t buy in the near term, and the low construction rate of apartments.

If annual rent gains sustain 3.5 percent annually, rents will double in 20 years. If they reach 5 percent, rents would double in 14 years.

In addition to strong rental returns, investors can bank on solid home price appreciation given the low prices in most areas. Using 2000 as a “normal” year in which the market saw neither a bubble nor a bust, the metrics on home prices in relation to consumer prices imply a 14 percent undervaluation, and in relation to rental rates, a 20 percent undervaluation.