Well, folks, I received dozens of emails from all over the country in response to my last column about Washington's out of control real estate market. It seems I'm not the only one worried about a downfall.

Readers had all kinds of theories as to what would motivate people to bid a house $100,000 over asking price or camp out for two weeks in order to secure a new townhouse purchase. One reader cited the "feeble minded sheep" theory -- "If everyone's doing it, we might as well join the bandwagon."

Another reader blamed the real estate agents, saying they created the market hype that turned into a feeding frenzy.

Yet another reader blamed Fannie Mae and Freddie Mac, the two giant companies that purchase mortgage loans from lenders in bulk. This person says that Fannie and Freddie are artificially keeping rates down to create more business for themselves.

I don't really agree with any of these folks. The market is the market and it is driven by supply and demand. It's as simple as that. Sure, low interest rates make homes more affordable, but as we have seen in most areas, even as home prices increase, the demand still exists. One day, however, I believe that affordability will come into play and demand will slow, supply will rise, and home prices will fall.

Which leads me to a very practical question from another reader. Forget about why the market is the way it is. It is what it is and we can't change that. This reader asks how he can be assured that if he buys a house, he will not end up paying too much. Should he only make low-ball offers? Should he get into a bidding war because owning is better than renting? Should he scrap the idea of buying and continue to rent?

The fact is that no homeowner is immune from the possibility of declining property values, especially over the short term. When there is such a large imbalance between buyers and sellers, the market will eventually over correct itself, resulting in a sales slump accompanied by flat or declining sales prices.

Let's address his questions. He is afraid that if he joins the feeding frenzy he will end up paying top dollar for a home at the peak of the market. When the frenzy is over, he may be stuck with a home worth less than what he paid, resulting in what amounts to a bad investment.

There is no particular approach to buying a home that I would necessarily advise. However, his suggestion of making low offers would be impractical in this market. As long as there are more buyers than sellers, someone will out bid a low offer so he'd be wasting his time.

History about the housing market does shed light on a few things. First, residential real estate, by and large, has proven to be a sound investment over the long term. Those are the key words -- long term. Folks that buy at the top of the market can very likely experience temporary property devaluation. How long the temporary devaluation will last is never known until it happens. Last week I read in a local newspaper that a particular subdivision in Fairfax County, Virginia was among the fastest appreciating neighborhoods in Washington. Ironically, I remember the homes in this same subdivision lost at least 20 percent of there original value in the early 1990s. It took several years for these homes to appreciate back to the values of the original purchase prices. Today, the homes are red hot.

Having said that, my approach to buying a home can be summed up like this: Unless you are terribly unlucky, owning a home will provide greater wealth over the long term than renting a home. The folks that are at the greatest risk of making a bad investment by purchasing a home are those that have an inflexible plan to hold the property over a short period. In other words, those who decide to buy a home knowing that for some reason or another, they will have to sell in one or two years, face the greatest risk of being caught in a "buy high, sell low" situation. However, barring any unforeseen circumstances, those who buy a home with the ability to hold the property are likely to still end up with a sound investment.

Remember that when this feeding frenzy ebbs, many neighborhoods will only experience flattening appreciation. But I happen to believe that when this is over, there will be a lot of homes that will experience some value decline. A lot of people disagree with me and I certainly could be very wrong. Time will tell.

Published: April 1, 2004

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, the president of PMC Mortgage Corporation in Alexandria, VA, is a mortgage columnist whose work has appeared in numerous consumer, real estate, and mortgage publications. Mr. Savage welcomes your questions for possible use in this column, however because of the volume of mail received, Mr. Savage cannot answer questions individually.