Buyers, sellers and journalists wonder if a dreaded bubble has popped, and if so, whether it can ripple eastward, like any trend that starts in California. Housing economists, Realtors and academics say no: There is no bubble, one hasn't burst, and all real estate markets are local and thus are insulated from what happens elsewhere.

"There is no national price bubble. Never has been; never will be," says David Lereah, chief economist for the National Association of Realtors. That leaves room for local housing bubbles, but Lereah sees no sure signs of those, either.

Instead, say Lereah and other experts, prices in the suddenly cooler housing markets in California and Las Vegas are leveling off in response to local supply and demand, as well as a dash of buyer and seller psychology. What's the difference between a leveling-off and a burst bubble? Analysts will know it when they see it.

"It all has to do with how one defines a bubble," says Gary Painter, director of research for the University of Southern California's Lusk Center for Real Estate and an associate professor in the School of Policy, Planning and Development. "Most recently, when we talk about bubbles, we talk about the NASDAQ in 1999. That's a bubble bursting, where values are so out of line that it's all speculation."

Hot housing markets aren't bubbles, Painter says, "because valuations have been pretty much in line with what economists call the fundamentals of demand -- low interest rates, very little supply -- and so when interest rates ticked down, that translated into a higher housing price."

And when interest rates ticked up early this summer, some markets in California -- Orange County, Palm Springs, Ventura, Monterey County, the northern wine country and the greater San Francisco Bay Area, including Silicon Valley -- hit the brakes. Sales and prices in all of those markets fell in July, compared to June.

The same happened in a few markets in Florida, where prices had been zooming upward. The number of existing single-family homes sold in the West Palm Beach area fell 16 percent from June to July, and the median price dipped half a percentage point. Sales and prices were slightly down in Miami, too. In the state overall, sales fell 12 percent and the median price, 1.5 percent.

Las Vegas tells a different story. Fewer houses there were sold in July than in June, but prices were up slightly.

"It all has to do with how one defines a bubble," says Gary Painter, director of research for the University of Southern California's Lusk Center for Real Estate and an associate professor in the School of Policy, Planning and Development. "Most recently, when we talk about bubbles, we talk about the NASDAQ in 1999. That's a bubble bursting, where values are so out of line that it's all speculation."
Hot housing markets aren't bubbles, Painter says, "because valuations have been pretty much in line with what economists call the fundamentals of demand -- low interest rates, very little supply -- and so when interest rates ticked down, that translated into a higher housing price."

And when interest rates ticked up early this summer, some markets in California -- Orange County, Palm Springs, Ventura, Monterey County, the northern wine country and the greater San Francisco Bay Area, including Silicon Valley -- hit the brakes. Sales and prices in all of those markets fell in July, compared to June.

The same happened in a few markets in Florida, where prices had been zooming upward. The number of existing single-family homes sold in the West Palm Beach area fell 16 percent from June to July, and the median price dipped half a percentage point. Sales and prices were slightly down in Miami, too. In the state overall, sales fell 12 percent and the median price, 1.5 percent.

Las Vegas tells a different story. Fewer houses there were sold in July than in June, but prices were up slightly.

In all of these places, on both coasts and in the desert, prices were much higher in July 2004 than they were a year before. Mortgage rates, too, were higher in July 2004 than the same month in 2003. Economists say that much of that run-up in home prices occurred early in 2004, when mortgage rates were low. Then the average rate on a 30-year mortgage rose almost a full percentage point from mid-March to mid-May this year, followed by a Federal Reserve short-term rate increase in June. Some housing markets felt a jolt.

Painter attributes the recent price drops in California to those higher mortgage rates. Because prices are so high and mortgages are so big, Californians tend to be even more sensitive than others to the size of monthly payments. When rates rise, fewer people can afford to buy, and that causes prices to level off or fall.

California is well-known for its booms and busts in real estate. Prices cratered in southern California in the early 1990s after layoffs in the aerospace industry, and the end of the dotcom boom depressed prices in Silicon Valley and the Bay Area.

Even if prices fall 20 percent in California, Painter wouldn't consider that evidence of a burst bubble. "If there were an increase in interest rates by 1 percentage point, that could lead to a 20 percent decline in housing prices," he says. If that were to happen, buyers would be responding to the rate increase's effect on monthly payments, not on bubble psychology, he says.

A sudden, 1-point rise in mortgage rates is not imminent, housing economists believe. Most of them predict that the average rate on a 30-year fixed-rate home loan will rise less about half a percentage point by year's end, to about 6.25 percent.

Confirming the conventional wisdom that all housing markets are local, the head of the Greater Las Vegas Association of Realtors says his city's recent decline in sales has less to do with interest rates and more to do with a sudden influx of houses for sale.

When word came that prices in Vegas had increased by more than 52 percent in one year, sellers flooded the market with houses, says Lee Barrett, president of the local Realtors association and broker for Century 21 Barrett & Co. It happened so abruptly, Barrett says, that "it felt like going from Kansas to the Land of Oz."

Instead of having just one or two or three houses to look at, buyers had their pick of 20 or 30, Barrett says. Buyers are still shopping, but no longer feel compelled to bid $30,000 to $40,000 higher than the asking price. Buyers feel less urgency. That's understandable, because 6,698 existing homes were put on the market in July, a 91 percent increase over the number of new listings in July 2003.

Barrett is relieved, and not only because he doesn't have to wade through 20 to 30 offers on every house that he sells, but because he doesn't want Las Vegas to be like California, with its real-estate booms and busts.

"We've never been an Orange County or Southern California, up and down and up and down," he says. "We've been consistent."

As consistent, that is, as any place with 52 percent price appreciation in one year.

Rapid home appreciation is practically absent between the coasts. Lereah, of the National Association of Realtors, lists some of these "have-not" areas: South Bend, Ind.; Syracuse, N.Y.; Little Rock, New Orleans, Dallas, Atlanta and Austin. Prices in most of those places are rising, but not rapidly, because people aren't moving to those cities the way people are flocking to places like Orange County and Las Vegas.

It's just a matter of time before those have-not markets pick up, says David Berson, chief economist for Fannie Mae. He says these slower-growth areas tend to depend more heavily on manufacturing jobs, and those have been disappearing. He expects strong job growth in manufacturing in 2005, accompanied by modestly rising house prices in those places.