I find it interesting that most of the real estate nay-sayers seem to be stock market gurus who can’t explain how the stock market works, but they seem to be certain real estate is headed to the bottom, and soon.

As I have tried to follow the arguments on both sides, there are several facts that seem to keep resurfacing. Here are some conclusions that I have gathered and settled upon:

* Real estate markets are extremely local in nature. Unlike the stock market, there is no national real estate market. Instead, there is a conglomeration of many local markets.

Some, like Las Vegas and San Francisco, have experienced extreme price increases in recent years. Other big markets, like Salt Lake City and Atlanta, have been much more stable in recent years.

* The vast majority of people who buy real estate are buying a home in which they intend to live. This has a powerful stabilizing effect on the real estate market.

In other words, if I own a house for me and my family, and I find out that the value of that house dropped by 20% last year, I am completely unaffected unless I am trying to sell. As long as I can continue to afford the monthly payments, even if they are relatively high, I can stay in my house and continue living there.

* Real estate, unlike stocks and bonds, is an extremely illiquid investment, meaning that people don’t wake up one morning, hear bad economic news, and run out and sell all their real estate.

* Different markets across the country are experiencing differing degrees of appreciation. In 2004, the average home in Las Vegas increased 54% in value. Obviously, that rate of increase is mathematically unsustainable. During the same 12-month period, homes in metro Atlanta increased by less than 5%. Not only is that sustainable, I submit that 5% may indicate that homes in Atlanta are becoming a bargain relative to homes in Las Vegas.

This fact underscores my initial observation, which was that real estate is a local, not a national market.

Financial services giant National City Corporation conducted a study earlier this year of the 99 largest housing markets in the United States. Their economists found that certain markets were experiencing housing "bubblettes" with homes overvalued at a rate more than 20% above indicated value. Other markets were in line with expectations, and others were, surprisingly, apparently undervalued.

The study examined what home prices should be, controlling for differences in population density, relative income levels, interest rates, and historically observed market premiums or discounts. Potential "bubblettes" include cities such as Chico, California, where a buyer will pay the highest premium for a home at 43 percent. Premiums above 20 percent can be found in San Francisco, Miami and Los Angeles. Other key markets such as New York and Chicago came in below the 20 percent mark, at 16 and 11 percent respectively.

However, the study reveals that overvaluation is not pervasive and that many areas are undervalued, such as Salt Lake City, Utah, the most undervalued housing market with a 23 percent discount. Other undervalued cities include Memphis, Tenn., and Macon, Ga.

I hesitate to disclose that I was not aware Macon would appear in a study of the top 99 housing markets, but was pleased to find that it seems to be undervalued by no less than 17 percent. That’s healthy.

According to this study, the Atlanta housing market is undervalued by one percent, meaning statistically we are just about right. Once again, here is a reminder that all real estate markets are local, and that the relationship in our market between supply and demand is apparently at equilibrium.

History has shown that, from time to time, certain markets tend to get overheated. When that happens, it is typical for that market to cool down for a while and see other markets catch up.

That phenomenon is called the principle of substitution, and it says that if things get too expensive in one part of the country, buyers will look elsewhere and substitute the more affordable market for the less affordable one. It simply means that the economy is working as it should.

So, what is the likelihood of a housing price collapse?

Well, some metro areas have, in the past, seen dramatic price decreases. But those price drops typically followed periods of hyper-appreciation which were far beyond the national average. In other words, when things in one area get too far out of whack, prices seem to correct themselves.

The economist who conducted this study draws this conclusion:

"While overvaluation in home prices presents a risk of future declines," Richard DeKaser notes, "these risks may well go unfulfilled. The true test of today's premiums in these markets will be the economic environment, especially incomes and interest rates, in the years ahead."