In some markets, says an influential new Harvard study, the fun is about to end.

THE HOUSING MARKET'S foundation is finally starting to shows signs of stress.

This, according to the "State of the Nation's Housing 2005" report released Monday by Harvard University's Joint Center for Housing Studies. Despite strong fundamentals supporting the residential home market, says the study, housing affordability is waning, and at least three major areas -- Southern California, the New York metropolitan area and Southern Florida -- are showing signs of a pricing bubble.

Another problem, particularly in those areas, is the disparity between the residential home and rental markets. The after tax cost of owning now exceeds the cost of renting a comparable home by 28% nationally, and by much more in certain areas of the country, according to the report. In 2003, it cost 23% more to own than rent a comparable home, says a researcher at Harvard University's Joint Center for Housing Studies.

The "State of the Nation's Housing Report 2004" was far more upbeat than this year's edition, with no mention of housing bubbles and only minor concerns over affordability. The 2004 report mentioned the risk that if job growth faltered or interest rates spiked, the housing market could suffer. The most likely outcome in that event, however, was a soft landing in which home prices, sales and new construction eased rather than dropped off sharply.

This year, the language is more cautionary, particularly regarding the three bubble regions. "We want to be sure people are aware that, notwithstanding these past few years, buying a house is not a risk-less investment...this is clearly near the apex of the cycle," says Nicolas Retsinas, director of Harvard's Joint Center for Housing Studies.

To be clear, Retsinas isn't predicting a nationwide housing crisis. Indeed, 77 of the 110 largest metro areas show no affordability troubles and would likely be untouched if the housing bubble popped in the hottest markets, says Retsinas.

The report also points out that strong underlying fundamentals, such as low interest rates, continue to fuel the housing boom that has gone on for 13 years and counting. Strong price appreciation has prompted consumers to tap the equity in their homes through home equity lines of credit and cash-out refinancings -- and they're spending those proceeds at a torrid pace. Such housing-related spending accounted for one-third of GDP growth in 2004, says the report.

And yet homebuyers -- especially in pricy coastal markets -- are struggling to afford ever-more-expensive homes. The ratio of house prices to median household income sits at a 25-year high in half of the metro areas that the Harvard study evaluated. In some of the pricey metro areas of California, the ratio tops out at more than nine to one.

The only way that many homeowners can afford to buy homes in such expensive regions is to forego the traditional 30-year fixed-rate mortgage and take on riskier financing. Adjustable rate mortgages accounted for more than one-third of all mortgage loans last year, and interest-only loans for nearly one-quarter. When interest rates rise, such borrowers could see their mortgage payments soar.

All of this leaves first-time homebuyers in a pinch. When asked what advice he has for beleaguered consumers, Retsinas acknowledges the risks these people face, especially if they want to buy into Southern California, New York or Southern Florida.

"As a general rule of thumb, if you can afford a home and are not taking on one of these risky (mortgages), and you know you will not need to move for five to seven years, you probably have a good chance of not losing money," he says. "People primarily lose when they are forced to sell."

But as frothy as the market might seem in some places, demographic trends -- particularly immigration -- could be one factor that keeps the house market going strong, perhaps for as long as the next decade, according to the Harvard study. New arrivals could easily top the 1990s record of 10 million over the nest 10 years, says the study. Moreover, the children of immigrants who came here during the 1980s and 1990s are getting close to the age when they'll start buying homes. Some 15% of all 11- to 20-year-olds are first-generation Americans. In total, immigrants or their children are expected to account for half of net household growth over the next 10 years, according to the study. During the past decade, immigrants accounted for one-third of household growth.

On top of that, younger baby boomers will soon enter their peak income years, with record wealth fueling the demand for second homes, the study says.

Not everyone agrees with the report's findings. Mark Weisbrot, co-director of the Center for Economic and Policy Research, a Washington, D.C.-based think tank, says there's clearly a bubble in the housing market, and that when it bursts it will likely cause a national recession worse than the one following the stock market bubble. In 2001, the strong housing market tempered the downturn. This time, he says, it's difficult to imagine anything that could ease the pain.

Even those markets that didn't experience the huge run-up could be affected. Weisbrot says home prices in those areas won't fall drastically, but the local economies will suffer, as was the case when the stock market popped. And this will eventually dampen demand for housing.

As for first-time home buyers, Weisbrot sees no reason why they should jump in now -- particularly with rentals so affordable by comparison. The risks, he says, are so high that he can't understand why anyone would take the gamble.

"Buying a home now in any of the bubble areas is very much like what it was like buying into the Nasdaq," he says. "You could get lucky and it could keep growing (for a little longer), but you are also taking a big risk."