WITH SCANTILY CLAD MODELS

and hot DJs luring prospective buyers to Miami luxury condos, is it any wonder that Federal Reserve Chairman Alan Greenspan last week used the word "froth" in connection with the current real estate market?

Greenspan is rather late to the party. Economists, pundits and journalists (including myself) have been saying for months that the real estate market is overheated. New York magazine ran a cover story last week warning about a real estate bubble, whose author, Henry Blodget, is none other than the former Merrill Lynch Internet-stock bull. Presumably he knows a bubble when he sees one. About the only people who aren't fretting about soaring real estate prices are the ever-upbeat realtors (and even they will say, off-the-record, that the market is crazy) and, of course, those investors making their deposits on unbuilt condos after one too many mojitos.

Can all these Cassandras actually be right? After all, markets usually factor in the conventional wisdom, and prices are set accordingly. If everyone believes that real estate prices are about to implode, they would have already imploded. Despite the current chorus of caution, buyers are still lining up to buy real estate. Just this morning, we learned that existing home sales jumped 4.5% in April to a record 7.18 million units, according to the National Association of Realtors far stronger than the flat reading economists were expecting.

I'm not convinced that real estate is in a bubble, or that prices are necessarily headed for an imminent collapse. I'm not selling my apartment or my weekend house in upstate New York to try to capitalize on a market peak.

On the other hand, I wouldn't dream of putting more money into real estate right now, and I wouldn't want to be over-leveraged with big mortgages in order to cash in on rising home prices. I can't foresee the future, but I can say to a near certainty that real estate prices won't keep soaring at an annualized rate in excess of 20%, as they did last year in some areas. You can do the math and see how fast that puts housing prices in the stratosphere.

But all of this prompts an important question for first-time home buyers, people who aren't speculators or investors, and just want a decent place to live and some security for their families. I got a poignant letter from such a person recently bemoaning my warnings that real estate was a sellers' market and a risky investment at current prices, especially with a risk of rising long-term interest rates. What's someone to do who's stuck paying rent and watching his or her savings steadily fall behind rising home prices?

I know the feeling. I remember vividly trying to save the money for a down payment on a New York apartment during the early- and mid-1980s, another period of fast-rising real estate prices. The more I saved, the more I fell behind. Everyone else seemed to have self-satisfied anecdotes: how they got an "insider's" price when their building went co-op, or how a six-room apartment overlooking Central Park in the San Remo went for $40,000 in 1976, the year I moved to New York. But I didn't have $40,000, or even $10,000 back then, and I was never an insider. Finally, after 10 years of renting, I landed a book advance that, along with all my savings, became the down-payment on a modest apartment. I was convinced I was buying at the top.

New York real estate prices did plunge, but not until 1991, and they never got as low as the price I paid. So despite my own concerns about high real estate prices, my advice to first-time buyers, for whom the home they want to purchase is their primary residence, and who can manage the down payment and monthly mortgage payments, is to ignore all this talk about an overheated real estate and the likelihood of a coming collapse in prices. Think of real estate less as an investment, and more as a consumer durable a necessity.

Even if prices go down, you will still own an asset. If you enjoy living in it and can meet the monthly payments, what difference does the market value make? I feel the same way about the seemingly endless conversations with people boasting about the soaring value of the real estate they happen to occupy. So what? Unless they plan to sell it now, and downsize, or move into a cheaper place (highly unlikely), they're no better or worse off than they were before real estate prices took off. And if they're planning to trade up, they may actually be worse off when they discover that the even bigger or more luxurious place down the block has appreciated even more than theirs.

I have a friend in New York who at least had the courage of his conviction. About two years ago he sold his charming two-bedroom apartment in an old town house for what seemed like an astronomical price. He invested the proceeds and moved into a rental building, planning to buy again after the market collapsed. He's still waiting, and his new landlord just raised his monthly rent to $5,000. That kind of monthly payment finances a pretty generous mortgage. Now he's thinking of buying again even though he's more convinced than ever that the market is at a peak.

First-time buyers can take some comfort that even if they do buy at the top and prices drop, other real estate will also decline. If they want to sell, even at a loss, and trade up to something better, that new home also will have dropped in price. Whatever happens to prices, owning real estate at least puts you on the elevator. You won't be stuck waiting in the basement forever while everyone else ascends to the penthouse.

Let me emphasize that this advice goes only for first-time buyers of primary residences, though I might also make an exception for buyers who are looking for a second home for their own use and can comfortably afford the payments. For everyone else, I would beware. It's true that the real estate market isn't like the stock market: It moves in longer cycles, and it is less prone to sudden price shifts, let alone collapses. But once a negative market psychology sets in, the decline in real estate can be long and painful, as the 1991 recession made clear for many home owners. I believe that over time, real estate returns, like those of other asset classes, will revert to their historical norm, which is a markedly lower rate of return than stocks. That means the longer the current boom keeps going, the longer, and harder, the fall.