For some time the debate has been raging: If the stock market can quickly go from zooming to zonked, what about housing? Do we have a housing bubble that can quickly deflate at anytime?

While the economy was in a recession during the past year, the housing market soared. Both existing and new home sales reached record levels in 2001, and prices generally rose. Meanwhile, while the NASDAQ used to be above 5,000, it is now floundering at 1,800 -- a 64 percent decline. The Dow Jones Industrial Average of 30 industrials is around 10,200 -- down 9.7 percent from the 11,300 levels seen last May.

So could it happen to real estate?

Real estate is a commodity and like all commodities there is risk: be assured that prices can both rise and fall. That said, there are several factors which suggest that real estate values are unlikely to implode.

• The population is increasing. As the population grows the demand for housing swells.

• Household size is declining which means that more units are required even without population growth. Census Bureau figures show that between 1990 and 2000, household size fell to 2.59 people per property from 2.63 in 1990. During this period, the country added 13.6 million new housing units.

• We measure real estate value in cash. As inflation reduces the spending power of dollars, apparent costs rise. In other words, $300,000 doesn't buy what it did a few years ago, therefore it costs more dollars to purchase what was a $300,000 home. Same property, same number of rooms, but as the value of the dollar declines with inflation more mini-dollars are needed for a purchase.

• Real estate values are localized. It may be that prices fall in a given community because of job losses or population migrations. But a decline in one area may well mean more demand in other communities as job bases grow and populations swell.

In addition to the factors above, there is also the matter that the stock market and real estate are fundamentally different.

Speaking before the Joint Economic Committee last week, Federal Reserve Board Chairman Alan Greenspan explained:

The ongoing strength in the housing market has raised concerns about the possible emergence of a bubble in home prices. However, the analogy often made to the building and bursting of a stock price bubble is imperfect.

First, unlike in the stock market, sales in the real estate market incur substantial transactions costs and, when most homes are sold, the seller must physically move out. Doing so often entails significant financial and emotional costs and is an obvious impediment to stimulating a bubble through speculative trading in homes. Thus, while stock market turnover is more than 100 percent annually, the turnover of home ownership is less than 10 percent annually--scarcely tinder for speculative conflagration.

Second, arbitrage opportunities are much more limited in housing markets than in securities markets. A home in Portland, Oregon is not a close substitute for a home in Portland, Maine, and the "national" housing market is better understood as a collection of small, local housing markets. Even if a bubble were to develop in a local market, it would not necessarily have implications for the nation as a whole.

These factors certainly do not mean that bubbles cannot develop in house markets and that home prices cannot decline: Indeed, home prices fell significantly in several parts of the country in the early 1990s. But because the turnover of homes is so much smaller than that of stocks and because the underlying demand for living space tends to be revised very gradually, the speed and magnitude of price rises and declines often observed in markets for securities are more difficult to create in markets for homes.

By its nature, real estate is something to be held over a period of years -- so while there may be short-sellers on Wall Street, there is no equivalent in real estate, something to consider when next someone mentions the possibility of a national real estate bubble.

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