(FORTUNE Magazine) – REAL ESTATE, the only investment created by God, is looking less than divine these days. In the world of single-family, owner-occupied houses and apartments, property values once seemed to waft blessedly upward year after year, like smoke from the backyard barbecue. But now the economy is weak, housing markets are sluggish, and some Wall Streeters and academics are even projecting a collapse. Owning a home suddenly seems to require a leap of faith. Take Bergen County, New Jersey, a New York City suburb where prices during the 1980s rose by as much as 59% in a single year. In the past 12 months they've dropped by 7%. Or take Denver, where nervous homeowners have seen property values stagnate while in other parts of the West they surged. Thousands of houses that were once owned by bankrupt S&Ls and will soon be liquidated by the federal government have cast an additional pall over the market. Even in Beverly Hills, where doggy properties aren't the problem, some homeowners have learned the hard way that the boom is over. Says Kathy Villa of realtor Asher Dann: ''I turned down two listings last week because I thought that the prices the sellers wanted were too high.'' There are plenty of worrisome omens for homeowners who fear that the equity represented by the roof over their heads is going to end up around their ears. The market has become increasingly sluggish, with sales of existing single- family, owner-occupied homes, including co-ops and condominiums, declining for the past eight months. At the end of May, median prices were a bit above where they had been in 1989 but had not kept pace with inflation. Meanwhile, buyers for new homes are scarcer than they've been since the 1981 recession, and new-housing inventories are so bloated that if demand stays at its current level, builders won't need to lift a hammer until next year. So skittish are homeowners that in some circles pessimistic talk about real estate is no longer considered polite conversation. Says Michael Aronstein, a Wall Street investment adviser who has been predicting a price collapse: ''It's like telling someone that their children are ugly. I don't get invited to cocktail parties anymore.'' Does the family house still make sense as an investment? Despite the parlous condition of today's markets, the answer is almost certainly yes. In the 1990s, according to many economists, housing prices should rise slightly faster than inflation, with occasional dips below. That alone would make the family abode a respectable if unexciting shelter for savings. Add the rent you would pay if you didn't own -- plus the still- generous tax breaks allowed under federal and some state laws for mortgage interest payments and property taxes -- and the family house looks attractive indeed. According to Karl E. Case, a Federal Reserve economist who has made detailed analyses of housing values in four U.S. cities, an upper-middle-class homeowner carrying an 80% mortgage might easily enjoy an annual return that is . fully five percentage points ahead of the Treasury bill rate. But prices won't be going up at the impressive rates they did in many hot markets in the late 1970s and early 1980s. For people who now own houses, that could mean bitter disappointment next time they sell. The American homeowner buys and sells on average every 13 years; therefore, the thinking of many people has been shaped by transactions completed in a period when residential real estate did exceptionally well. The increase in value was fueled by inflation and burgeoning demand from house-hunting baby- boomers. Over the next 13 years houses will be far less apt to make their owners rich. Inflation seems unlikely to soar again, and growth in demand will probably slow as the baby-busters take their place in the home-buying procession behind the aging baby-boomers. Says Nicholas Perna, chief economist of Shawmut National Corp.: ''From here on out, my net worth is going to have to grow in other ways.'' An analysis of the demographic shift by Harvard economist N. Gregory Mankiw and graduate assistant David Weil recently became a lightning rod for worries about the future of housing prices. Broadly distributed this year by the National Bureau of Economic Research, their work forecasts a 47% decline in the real price of houses and apartments over the next 20 years. If that turns out to be accurate, the value of a dwelling bought for $93,000, the current median for existing homes, could sink like the Bismarck to $66,523 in today's dollars by 2010. Mankiw and Weil argue that as more and more baby-boomers hit middle age -- a process now in full swing -- they'll have completed their initial home purchases and the growth of demand is bound to slacken. Baby-busters, the generation born after 1964, simply aren't numerous enough to gobble up houses and bid up prices the way their predecessors did. Fiercely disputed and widely unread, the study is in fact little more than an academic exercise -- it assumes that present trends in such important variables as family income will remain unchanged. Few people, including Mankiw and Weil, really expect that. Indeed, the study concludes, ''The best way to hedge the uncertainty about future housing costs is to pay them in advance -- that is, to be a homeowner.'' (Mankiw himself owns a house; Weil would like to.) All the same, the National Association of Home Builders felt obliged to strike back with a panel discussion in Washington, D.C., billed as the ''Slowdown Showdown'' and with a report that began ''No! Real estate prices will not collapse in the 1990s.'' A CRUCIAL ASSUMPTION homeowners ought to discard: that until very recently property values have soared. They really haven't. The real value of U.S. housing has remained virtually flat since double-digit inflation ended early in the Reagan Administration. Only in superheated markets like metropolitan New York have prices since then gone up in real terms. According to the National Association of Realtors, the median price for the resale of a house -- the type of transaction that accounts for about 80% of the U.S. residential market -- notched up an average of 4.58% a year nationwide in the 1980s, a hair less than the average annual increase in the consumer price index (4.64%). The median price of new houses, by contrast, rose much more -- an average of 8.16% per year since the recession. But that figure, which optimistic realtors love to cite, is deceptive. Throughout the 1980s builders built bigger: The typical house erected in 1989 was 22% larger than its 1982 counterpart. A substantial share of the increase in median price reflects that change in quality. In an effort to adjust for such distortions, the Commerce Department maintains a ''constant quality'' index, which was updated and refined in May. It takes as a baseline the average house built in 1987 and factors in market data to reckon what that structure would have sold for in prior and subsequent years. According to this yardstick, on average the price of a new, one-family detached house increased only 4.2% annually in the 1980s -- even more slowly than the prices of existing homes. THE STAGNATION of prices has been easy to overlook because of dramatic -- and highly publicized -- gains (and losses) in some parts of the country. Observes Robert Van Order, chief economist of the Federal Home Loan Mortgage Corp.: ''The housing market became much more local and regional in the Eighties than at any other time.'' In 1978 the median sale price of existing homes in the U.S. ranged from a low of $42,000 in the Midwest to a high of $67,000 in the West, a difference of just $25,000. Median prices in the Northeast and South were within $3,000 of each other -- $48,000 and $45,000. But by 1989 median sale prices went from $71,000 in the Midwest to $145,000 in the new high-priced region, the Northeast -- a range that, adjusting for inflation, was 60% larger than that of 1978. For the householder in, say, Nashville, where prices have been flat, it is hard to gauge the meaning of the collapse of the Texas market or the boom of San Francisco. Conditions in one region sometimes affect another -- houses in Boca Raton, Florida, have moved slowly of late because retirees who hoped to migrate there have been having trouble selling their property in the Northeast. But in most cases, economists say, regional markets are relatively independent; the diversity of each local economy is a better predictor of volatility. When oil prices dropped in the early 1980s, for example, all Texas was hurt, but housing prices in Houston fell further and stayed depressed longer than those of Dallas, whose economy relied less exclusively on oil. Similarly, though the federal Resolution Trust Corp. has some 30,000 residential properties it must unload, the effect of the savings-and-loan crisis is likely to remain confined to a few regions. Nearly half the properties are in Texas, and most have long been foreclosed on, so the local market has had plenty of time to reflect the bad news. The RTC has yet to announce its liquidation plans, but the sell-off should cause surprisingly little additional damage to the value of owner-occupied homes. Though there will always be hot markets and pockets where prices drop precipitously, most experts think regional differences will narrow in the 1990s, unless the national economy encounters another major shock. The only homeowners likely to feel much pain are those who are forced to sell quickly while the market is soft. Realtors report that changes in personal circumstances -- job transfers, divorces, forced retirements -- account for an unusually high share of recent sales. Other would-be sellers, unable to find a buyer at a satisfactory price, simply pull their property off the market. BUYING A HOUSE is a good idea, if you plan to live in it a long time. (If you need to move in the near future, consider a rental; with vacancy rates running at more than 10% in large apartment buildings nationwide, you may be able to negotiate a cut-rate lease.) Buyers can find terrific bargains if they understand the psychology of owners who want to sell. Pay little attention to asking prices, for one thing; in a depressed market they reflect reality even less than usual. Says Jim Merrion, a senior vice president for Coldwell Banker in Oakbrook, Illinois: ''People see the price their neighbor got last year and want the same and then some.'' Look instead for the seller's ''reservation price'': the rock-bottom figure below which the seller won't go, typically calculated in a rough-and-ready way from what he originally paid for the place. The best bargains are often to be had from homeowners who bought cheaply -- ideally, before the days of high inflation -- and stand to gain hugely, even after they cut their price for you.

CHART: NOT AVAILABLE CREDIT: NO CREDIT CAPTION: HOW PRICES CLIMBED The Commerce Department's ''constant quality'' index, which adjusts for the changing size of houses built, shows that the price of new houses generally kept up with inflation or beat it. The West's surge in the 1970s reflects prosperity and population growth in California. Later, fed by the boom on Wall Street, prices zoomed in the Northeast -- at least until October 19, 1987. WEST NORTHEAST MIDWEST SOUTH RECENT SALES: EXECUTIVE HOUSES IN TEN MARKETS

CHART: NOT AVAILABLE CREDIT: KARL E. CASE, FEDERAL RESERVE BANK OF BOSTON, AND ROBERT J. SHILLER, YALE UNIVERSITY CAPTION: WHAT OWNING IS WORTH Financial returns on owner-occupied homes have sometimes exceeded those on common stocks, once the value of rent that owners otherwise would pay is factored in. The return shown for Standard & Poor's 500 is the average annual rate for the 15 years, including tax-adjusted dividends. Real estate returns are for unmortgaged property; they would be far higher on a house bought with 80% financing. SAN FRANCISCO CHICAGO DALLAS ATLANTA