A housing bubble is loosely described as an unsustainable rise in home prices that could lead to a collapse in values. While such a scenario is unlikely according to economists and others in the real estate industry, the real question is whether homeowners can expect a profit when they sell their homes.

It's important to examine the question from the perspective of home-price performance over time. Since record-keeping began in 1968, the national median home price has risen every year. While temporary price corrections have occured, statistics show that, over time, the typical home value rises at the general rate of inflation, plus 1 to 2 percentage points.

Even in areas in which temporary price fluctuations have occurred, most of the peaks and valleys in home prices that deviate from a normal, gradual increase tend to smooth themselves out during the typical period of homeownership.

Part of the confusion about the bubble stems from reports that link bubbles in the stock market with the boom in this year's housing market. For most people, housing is a solid investment that appreciates steadily over time. But, first and foremost, it is shelter.

"The stock market during the 'tech boom' turned into a means of speculation—who had the hot product and how quickly could someone get rich," said Scott Larson, a loan consultant from Washington Mutual. "Real estate, especially residential real estate, has always been about home and stability. Different factors drive the slow, steady build-up in value, which is why I don't believe that there is any bubble."

What Larson is finding is that most of his preapproved buyers are not worried about a future crash or a bubble, but there is some concern regarding declining values. "People are in the mode of 'If I wait, maybe it will get cheaper.' I tend to explore opportunity cost with them. If they are renters, every month they are renting they are throwing away money. If they are owners, the decline works both ways—on the property that they are selling as well as the 'deal' they may be getting on the new home, so it tends to be a wash."

Once people get over this psychological barrier, Larson believes they can focus on the home they are looking for. "We tend to emphasize that if it is the right home and it is available now, they should act now. If they try to wait for all of the other factors to align, the home is likely to be gone, especially if it is priced right for the market."

Although buyers are worried about pricing decline, seasonal factors may be at play. Traditionally, median home prices drop in the fall. That's because families with children, who generally purchase more expensive homes, time their purchases so they can be in their new home before the school year starts. As a result, there is a higher ratio of singles and childless couples purchasing more moderately priced homes in the fall, and the median price experiences a seasonal dip, not a loss in value.

The fact is, housing isn't the kind of quick in-and-out investment like Wall Street stock might be for some investors. Most people typically need to stay in a home for three to five years to build up enough equity to trade up to a larger home, although many people stay in their homes for considerably longer. Homeowners also enjoy appreciation on their home. For example, a first-time buyer who purchases a home with 5 percent down may see a rise in value by 5 percent during the first year, representing a fairly good rate of return.

One of the factors in the bubble discussion relates to inventory. According to the National Association of Realtors, the inventory of homes on the market has been extremely lean this year at the same time that sales have been at record levels. This places a certain degree of pressure on home prices. However, the association is forecasting a more balanced market in 2003, with home sales at a relatively slower but still historically strong pace. The rate of increase in home prices is expected to slow to historic norms, although it may remain somewhat higher in some of the markets currently experiencing double-digit price increases. The bottom line is that the population of the United States is growing faster than the supply of homes, which supports future home-price appreciation.

The children of the baby boom generation are entering their prime years for buying a first home. Immigrants, who came to the United States in strong numbers during the last decade, have acquired the necessary resources and are buying into the American dream of homeownership. At the same time, minorities are increasing their rates of homeownership. Families are trading up to larger homes while some baby boomers are trading down to a condo and also using some of their equity to buy a second home, sometimes as a pre-retirement home.

These strong demographic factors, combined with historically low mortgage interest rates, create the fuel for a robust housing market. In the long term, home prices will do what they have always done, gradually rising to build a reliable source of financial security for most families.