GRAPHIC, Color, Quin Tian, USA TODAY, Source: USA TODAY research (BAR GRAPH); GRAPHIC, B/W, Bob Laird, USA TODAY, Sources: California Association of Realtors, National Association of Realtors, U.S. Bureau of Labor Statistics, USA TODAY research (BAR GRAPH, LINE GRAPH); Cityscape view: John J.D." and [Jennifer Swartz] enjoy a view of the San Francisco Civic Center from their deck. They paid $535,000 for their two-bedroom condo. Stock options used for down payment: [Janice Burnham] prepares dinner with daughter Michelle. Burnham bought a home in Campbell, Calif., the heart of Silicon Valley.

SAN FRANCISCO -- Two years ago, Nick and Sloane Morgan were typical investors.

They had 75% of their assets in stocks, 25% in real estate and saved about 10% a month.

Following the stock market's dive, they've done a 180-degree turn. Undaunted by growing concern that housing, an engine of the anemic U.S. economy, might sputter, Nick, 42, and Sloane, 37, continue to buy. They no longer save; instead, they pour everything into real estate. Last spring, the Morgans bought a $512,000 home in the San Francisco Bay Area, the USA's priciest market, despite fears that values could tank following huge job losses.

Are the Morgans, with two sons ages 4 and 7, worried? Nope. "I feel great about it," says Nick.

Across the USA, more people like the Morgans are selling stocks and curbing new stock investments to buy real estate -- creating growing numbers of more house-rich but investment-poor Americans.

That could be a bad bet. While median U.S. home prices have risen 29% in the past five years as stocks went from boom to bust, that's not been the long-term trend. They might be committing a cardinal investment sin: expecting past gains to continue, as many did with technology stocks.

"People are gambling," says Karl Case, a Wellesley College economist and real estate expert.

Many home buyers think otherwise. A USA TODAY survey of 143 new Bay Area home buyers found 27% said stock sales were a very important source of their down payment. That's four times the percentage found last year in a National Association of Realtors survey. What's more, 20% said the main reason they bought was because they think real estate is a better investment than stocks.

Swooning stocks have been the real estate industry's "best friend" in the past year, says Barbara Corcoran, chairman of New York City's giant Corcoran Group real estate firm.

Dave Yeske, a San Francisco financial planner, says twice as many clients as last year are considering selling stocks to buy houses. One couple just pulled $250,000 from a brokerage account to buy rental property in the Bay Area.

The trend is part of the reason home sales continue to defy expectations in a weak economy, especially in markets where prices have risen rapidly, such as New York City, Washington, Boston, parts of South Florida and especially Silicon Valley. More than 100,000 Valley jobs have disintegrated in the past two years during the tech bust. Conventional wisdom says housing should likewise suffer.

But that has yet to happen. Home prices in San Francisco and nearby Silicon Valley soared 25% in 2000, 5% in 2001 and are on track to rise 12% or more this year.

Finding the money

One couple helping that along: John "J.D." and Jennifer Swartz. They figured real estate was a no-brainer investment after the technology bust clobbered their portfolios. The couple, who had been renting, bolted the stock market two years ago when they began amassing cash to buy a home. They paid $535,000 for a two-bedroom condominium last spring -- and felt lucky to get in the market.

J.D., 31, a sales executive for a Web site, and Jennifer, 29, an investor-relations executive, made a 20% down payment. About 60% came from their cash savings. In the past, that would have gone into stocks.

The purchase ate their cash stash. Now, they're saving for emergencies. They might buy stocks someday -- or they might buy more real estate.

They know they might only break even if they sell in the next seven years. "We'd love to get more," J.D. says, but he's also prepared for prices to fall. At their ages, he says, they have time to wait out market dips.

In Washington, attorney Constance Neary, 45, has made the same gamble.

The former renter waited to buy because she thought the D.C. area was in a housing bubble poised to burst. She expected prices to head south. They didn't.

"I finally just decided: I need to jump in," she says.

A single mother of two, Neary paid $263,000 in March -- 17% over asking price -- for a three-bedroom townhouse. For the $26,000 down payment, she cashed in life insurance policies that she had set aside for retirement and borrowed from her 401(k) retirement account.

Neary thinks she made a smart move. She gets tax deductions she couldn't get as a renter, and she thinks her home's value has already increased as much as $15,000. "Home investment is where the earnings are right now," she says.

Bill and Elena Carmody, both age 30, agree. They sold some of their mutual funds to amass the down payment for a $500,000 four- bedroom Bay Area home last spring.

Bill Carmody concedes prices could fall and stay down for two or three years. Their experience is the opposite. Three months after they closed on a 7.25% mortgage in April, they found a 6.25% loan and refinanced. In three months, their home's appraised value jumped nearly 20%.

"Unbelievable!" says Bill, who lost a bundle in tech stocks. "Better than any stock purchase I made."

Janice Burnham also has turned a little more sour on stocks -- and sweet on real estate. The engineer at online auctioneer eBay sold eBay stock options and used most of her cash to put 20% down on a three-bedroom, $546,000 Silicon Valley home in May.

Burnham, 43, a single mother, quit investing in stocks after suffering big losses in the tech crash.

If she invests in stocks again, she says, it will be conservative stocks.

Crunching the numbers

It's no wonder many buyers think real estate is a better investment than stocks. Median U.S. home prices are projected to be up 13% this year from two years ago vs. about a 29% decline for Standard & Poor's 500-stock index. The harder-hit Nasdaq index, full of tech stocks, is down 44%.

But over the long haul, stocks have outperformed real estate -- even in the white-hot San Francisco Bay Area. S&P's index soared 574% since 1982 vs. a 314% gain for Bay Area home prices.

Financial planners say it's appropriate to shift retirement money into a home as long as there's enough left to pay future retirement expenses. But putting too much into real estate -- as with any single investment -- can be a big risk, says Yeske, the San Francisco planner.

That might be especially true now as real estate experts and economists warn of possible housing bubbles -- and a possible crash - - in the Bay Area and beyond. While home prices powered ahead for much of the past year, there are signs of weakening. Median U.S. prices peaked at $163,900 in June, but have fallen since. A big decline in a handful of key markets could help drive the USA back into recession.

That could be a double whammy for home buyers who invested in tech stocks as they soared, only to sell them when the market soured -- then pumped the proceeds into homes just as prices started to fall, economist Case says.

If bubbles are ready to burst, economists and experts say, the first could be in the San Francisco Bay Area -- where home price increases and job losses have been more extreme than anywhere else.

In fact, 56% of Bay Area buyers in USA TODAY's survey bought partly because they feared getting left behind as prices rose. That's a sign of panic buying and a possible bubble, because prices get bid to unrealistic levels.

A similar situation happened in Los Angeles in the early 1990s. Prices fell there as much as 25% when defense jobs evaporated amid federal government cutbacks.

Still, hot markets could be spared big drops because of long- standing housing shortages. In California, for example, only 150,000 homes are being built annually -- 70,000 fewer than needed based on projected growth, says the Center for the Continuing Study of the California Economy.

One big unknown is whether and how fast interest rates, which have sunk to 30-year lows of 6.04% for 30-year mortgages, might go up.

Many economists say the Federal Reserve is through with interest rate cuts, barring a big shift in the economy, and that its next move likely will be an increase, although that could be many months away. A sharp increase in rates could help prick a housing bubble, sending prices down.

First-time home buyers Rob and Wendi Baker are betting that California's housing shortage serves them well. Rob, 27, an engineer at Sun Microsystems, and Wendi, 26, a consultant to wireless communications companies, paid $488,000 for a three-bedroom Silicon Valley home last May.

Rob thinks their house could appreciate 10% in the next five years -- one reason they risked taking money from 401(k)s for the down payment.

They save about 6% of their annual income but don't invest in stocks. Between the tech crash and accounting scandals, "Cash seems to be a good thing to have these days," Rob says, mirroring the view of other buyers. "People are afraid to get burned again."