While most mainstream economists argue that a rising economic tide will buoy U.S. home prices further, that doesn't eliminate the likelihood that bubbles are forming in certain local markets.
A bubble occurs, economists say, when the underlying economics of personal income growth and other factors are ignored by buyers bidding up prices in a frenzy of speculation. Prices eventually come down when the market falls in line with local economic conditions.
Yet the real estate industry and buyers in demand-driven markets on both coasts consistently deny the possibility of bubbles forming.
``There is no bubble here,'' says Michael Beam, an agent- broker with Coldwell Banker Hunt Kennedy, a real estate agency in New York. ``There's low inventory and high demand. Buyers are out in force and I'm seeing bids of $50,000 over the asking price on certain properties.''
Unfortunately, it's all too easy to believe that housing prices will continue to soar. After all, U.S. home sales set a record of 6.1 million houses last year, according to the National Association of Realtors, a trade group. The median home price rose 7.5 percent, the best year since 1980.
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