What bubble? Lenders happy to keep on giving.

Although they agree that the real estate market is flooded with ready capital, most financiers dispute the assertion that lending standards are getting too lax.

There isn't a real estate bubble to burst, they insist, and if anything is going to slow down, it will be prices--and it will be a good thing.

In an environment where millions of dollars are being paid for a new office buildings every day and condominium developers can't turn out projects fast enough, it would be hard to claim that loans are hard to come by.

Most lenders, however, insist that with real property being the safest investment at the current moment, people's desire to take on mortgage debts makes sense.

"I wouldn't say lending standards are lax. I think they are easy. And you must put into perspective why they are easy--today, there is simply too much capital in the marketplace, with too few places to put it," says David Michonski, chief executive officer of Coldwell Banker Hunt Kennedy.

"The money that has been put in stocks in the past few years has gone nowhere, people who invested in bonds have lost money, so there is a massive liquidity in the U.S. financial system today and it's finding its way into mortgage-backed securities, which offer a bigger yield than bonds, and therefore banks are under pressure to move that money. Their lending practices have loosened because there is so much money out to be placed.

"When there are alternative places for money to go, the money will go into those places and banks will tighten up their lending [standards.]"

Another residential lender, Nick Bratsafolis, chairman of Homebridge Mortgage, offers statistics to back up the claim.

"2004 was a historically good year for mortgage securities--only [a handful] received a downgrade status from the rating agencies," he explains. "Their performance was enhanced because of the appreciation in the real estate market. There doesn't seem to have been any inflationary influence. My feeling would be that as long as the prices remain stable (and that doesn't necessarily mean that they need to keep appreciating at the current rate), there isn't going to be [a change] in the performance. Should there be a decline, there will be a natural tightening of standards for the lending industry."

However, there are lenders out there who are a bit more worried than Michonski and Bratsafolis seem to be.

While Craig Bjornsund, senior vice president and managing director of NorthMarq Capital, thinks that in the commercial sector things are looking good, the residential condominium boom leaves him a little worried.

"There is a greater degree of discipline [than before], but probably not as much as we would like to believe," he notes. "Certainly in the avenue of new construction, there has been a fair amount of discipline shown on the commercial side. And I think with certain core assets [such as the purchase of the MetLife Building this spring], the prices make your head spin a little bit, but people are buying something that's irreplaceable, in a location that's irreplaceable."

When it comes to residential developments, however, a sharp rise in interest rates and slowed price appreciation might leave some developers struggling to make good on their loans.

"I think there is definitely too much money chasing deals. Competitive pressures have brought standards down and lenders are basically trying to push money out the door," Bjornsund says.

"In terms of new condominium construction and conversion, I think there is certainly the potential for a very meaningful correction. I don't think that the prices that are being paid for buildings [slated for conversion] are sustainable in a lot of markets." Matthew Classi, principal of GCP Capital Group, whose firm specializes in commercial mortgages, agrees. He said, "There is an abundance of capital available to almost any real estate venture," agrees

"I watch this with a worrying eye because escalating amount of debt might lead to problems, especially if interest rates should rise quickly. We do a lot of conversion and ground-up condominium development deals. When you look at the cost of land, and then you have escalating construction costs, we are getting to a point where you could have condominiums that will be in trouble if they come online two years from now."

Given stable market conditions, however, Classi thinks things might work out well for both lenders and borrowers.

"Right now. the sales market is very hot, very good, it supports all the valuations that you see today," he noted. "If all the variables stay in place, things are fine."

In fact, David Michonski thinks that the only real bubble is the fear being artificially created by the press. U.S. real estate has steadily continued to appreciate in value since the late 1940's, he notes--why would the trend change now?

"Let me put it this way: I think something is going to burst, but it's not the bubble in real estate," he says. "It's the bubble in price appreciation. There is this belief that once prices stop rising, they will start falling. But we can have a pause in pricing, without prices falling. It is possible that we will have a pause in real estate growth, but that doesn't mean that we are going to have a crash."

And if prices do stay put for a while--as Michonski believes they are starting to do--the outcome is likely to be positive.

"Consumers have reached the upper limit of their purchasing power based upon today's interest rate environment. People just can't go higher, banks are not going to lend," he explains.

"That's why I believe we are in a pause. Buyers are not going to be able to bid prices up more, sellers are not going to place things on the market and we are going to have a more orderly market, we are going to have the supply and demand in balance because when they are in balance, prices don't rise. I think this will last through 2005 and 2006 and toward the end of 2006 the Federal Reserve will become very accommodating again to make sure that things look good for the upcoming election."