WELLESLEY, MA.   I've here to visit Karl Case, a professor of economics at Wellesley College. He has been on the faculty for 25 years. It takes only a few minutes to get a sense that he is a lovely mixture of mind and heart, a proud teacher-parent with a multitude of accomplished daughters.

He's also an expert in real estate and one of the founders of Case, Schiller, Weiss, Inc., an innovative real estate consulting firm. The firm, which was recently sold to Fiserv, a bank software company headquartered in Milwaukee, combines a same-house sale price database and algorithms to create indices of residential real estate prices.

Over lunch at Paparazzi, we trade real estate stories. He tells me of a friend who bought a house on Martha's Vineyard for $400,000 in 1991 but recently sold it for $4 million.   I tell him of a friend who bought a house on Cape Cod for $90,000 in 1970 and sold it last year for $3.1 million. We joke that most academics have made more in real estate appreciation--- if they bought a house--- than they made in salary. This is true whether the period is 10, 20, or 30 years. Indeed, this may be true for many residents of the Bay State.

If there is a real estate bubble anywhere, it is in Massachusetts. Prices have surged in a 120-mile swath from Rockport on Cape Ann, through all of Boston and its suburbs, to the tip of Cape Cod. In Brookline, a close-in town surrounded by Boston, average single-family home prices have run from $556,000 in 1996 to $956,000 in 2002.   Condo prices have more than doubled, rising from an average of $199,000 to $421,000.

I asked Professor Case if the boom was having any effect on student career decisions.

"We are seeing our kids making choices they otherwise wouldn't make. The number of homes is fairly stable. The number of college students who stay varies. Over the last ten years, most stayed (in the area).

"But there has been a sea-change. Kids from the mid-west go back to the mid-west." He spreads his hands on the table. He raises one, then the other. "It's a matter of amenities here--- or there. If the city with the best amenities inflates--- well--- kids are mobile."

Does the price run-up mean the bubble areas are heading for a fall, that we will have an Internet-like crash?

"I don't think so. What most people don't fully understand is that a house provides two kinds of return. One is in appreciation or depreciation. The other is a service return.

"Look at it for its service return. You get a pretty decent return in housing services. You live in it. It's yours. You chose it. And you don't worry much about depreciation. You have to live somewhere. You do all the things that give you pleasure for the asset.

"That return is always there. People buy all kinds of things that have long lives. (Cars, washing machines, television sets, etc.) They use them for years and don't worry about selling them. There is risk, particularly if you're only going to live there a few years.

"The service return is a component of stability. It's real.

"Take family A and family B. Family A puts $100,000 in a Treasury bill that earns $833 a month and rents an apartment. Everyone agrees that family A has income and expenses.

"Family B buys a condo for $100,000. Question: is family B earning income? Answer: yes, because they don't have to pay rent.

"Now there is a third guy, C, why buys the unit for $100,000 and rents it for $833 a month. He's getting a return on his investment.

"The imputed rent (that Family B receives) is included in GDP. It's a substantial component of consumer consumption expenses--- and that's correct, it should be in there."

Are there any caveats?

"Yes. The service component is the dividend. It's much less volatile than corporate dividends. But everybody is leveraged (with mortgage debt) and assets are priced to reflect expectations of whether they will go up or down in value. The expectation influences your willingness to pay."

How does a real estate bubble break?

"Slowly. Remember, the service return is stable. It's the appreciation expectation that is volatile. Prices are "sticky" on the way down. It takes time for sellers to reduce prices.

"The classic example is Northern California in 1981. The 76-79 boom was extraordinary but it turned into an economic nightmare when Paul Volcker changed interest rates.

Mortgages got to 18 percent.

"People expected a crash.

"What happened is that sales went to zero but prices never fell. There were big gaps between bids and asking prices. If the economy tanks, the bubble bursts. Otherwise, (home prices) just stay flat."

"In Texas (home prices fell when) there was a complete collapse of the economy--- 8 percent of jobs were lost. In New England the figure was 11 percent. Nationally, the figure was 1.5 percent."

Do you think there is a bubble in New England now?

"Yes. Boston (office space) is 23 percent vacant. Rental housing is getting walloped. It's pretty sobering, what's happening out there."