NEW YORK (MONEY Magazine) - Think we're sitting on top of a real estate bubble just waiting to go pop? You aren't alone.

About 42 percent of MONEY subscribers agree that home prices have risen too high, too fast, according to an April poll. Only 39 percent are confident that today's prices make sense. And if you're looking for red flags, they're certainly easy to spot.

Nationally, home values climbed 14 percent last year, according to real estate consultant Case Shiller Weiss. (You can see CSW's forecasts for top metro areas by clicking here.) That's nearly double the 8 percent of 2003, when the bubble talk began in earnest.

Prices are up 20 percent or more in some coastal cities, putting homes out of reach for many. In Los Angeles, for example, just 5 percent of homes sell at prices affordable to a median-income local family.

And then there's what you might call the atmospheric evidence. Aren't all those home-remodeling shows just the 2000s' answer to CNBC? Don't today's house flippers remind you of yesterday's day-traders?

Well, sure. But if you're tempted to put off buying a home, or even to try cashing in on the one you have -- goodbye, city life; Green Acres, we are there -- hold on.

"It's very hard to forecast turning points," says Yale economist and CSW co-founder Robert Shiller, who thinks there's a bubble in "glamour cities."

After all, Federal Reserve chief Alan Greenspan complained of "irrational exuberance" in 1996, more than three years before the stock boom ended in tears. And the fact is that while some real estate speculators may be headed for trouble, putting money into your home can still be one of the best moves you'll ever make.

The big risk now is interest rates: The recent 5.8 percent rate on a fixed 30-year mortgage is near historic lows, and it's bound to go up, which means buyers should be less willing (or able) to keep bidding home prices skyward.

On the other hand, during the past year the economy has added about 2 million jobs, enough to keep propping up demand. For the next 12 months, CSW sees price escalation slowing, with Los Angeles, for example, tumbling from a 25 percent gain to just 5 percent.

CSW senior economist David Stiff isn't ruling out declines in the hottest markets. "Affordability is just such an issue," he says. But nationwide the firm is forecasting an increase of 7 percent.

That doesn't feel very bubbly. Any pop is unlikely to be nearly as severe as what can happen in the stock market. Local markets can drop 10 to 20 percent, but that's about as bad as it usually gets, thanks to what Wellesley College economist Karl Case calls "downward stickiness."

When demand dries up, potential sellers simply hang on and wait for prices to rebound. And a crash is merely a paper loss as long as you don't need to move. Meanwhile, you get a roof over your head and, with a little luck, nice neighbors and good public schools too.

"You don't worry about the value of your car going down," quips Case, the C in CSW. The more you treat real estate as something you use and not something you buy and sell, the less you need to worry about bubble talk.

The worst-case scenario isn't that your house declines in value for a few years. It's that your standard of living depends upon making small payments on a variable-rate loan or on tapping your rising equity, and you don't have a Plan B.

This boom's gotta end someday, even if that day isn't tomorrow. Today you have a golden opportunity to prepare. Here's how.

Adjustable-rate mortgages have allowed borrowers to build equity fast and pay less for the privilege. But variable-rate loans aren't the bargain they were.

"This is a great time to lock in," says David Lereah, chief economist for the National Association of Realtors.

Currently there's little difference between short-term interest rates, which the Fed has been pushing up, and long-term rates, which have been held down by an optimistic bond market.

Keith Gumbinger of financial data provider HSH Associates says that some borrowers with short-term ARMs have seen their rates rise to above 5 percent -- not far from the 5.8 percent fixed rate. "There might be a little better rate ahead," says Gumbinger. "But I wouldn't forecast it." Depending on your loan, waiting to lock in could add hundreds to your monthly payment.

What if you have a hybrid ARM in which your rate is fixed for the first few years? If you're in the last fixed year or two of a 5/1 ARM and you plan on staying in your home for the long run, locking in could save you money. But if you just got the loan, Gumbinger says, there's a decent chance rates will be this low again by the time you have to worry about it.

American homeowners took nearly $400 billion in cash out of their homes last year through home-equity borrowing and cash-out refinancings, according to Goldman Sachs.

That's twice as much as in 2001. And it's a good deal. For many, home-equity borrowing is a way to replace high-rate credit-card debt with an inexpensive, tax-deductible loan.

"That's very positive," says economist Mark Zandi of Economy.com. But Zandi sees evidence that some of the money is going to "raw consumption" like vacations and plasma TVs.

There are much better uses for your equity. A line of credit can be a great source of rainy-day funds, but act before heavy weather hits. You'll have a tougher time getting that line after you lose your job.

"We normally recommend getting as much of a line of credit as you can, but then to sit on it," says Mark Gleason, a Burbank, Calif. financial planner.

That's not to say you can't use your home's value to improve your and your children's standard of living. Most planners say using equity to help fund college is a reasonable choice.

And about 12 percent of readers in our survey said they were using cash from their equity to buy other real estate. This too can make sense -- a vacation home is something you can enjoy now and an asset that can grow in value.

What about renovations? We discuss smart home improvements here. Just don't trick yourself into justifying a fun project as an "investment." A soapstone countertop may pay off if you sell your house this year, but in 10 years it'll be part of a well-used and possibly out-of-style kitchen.

You might even be tempted to tap equity and put the proceeds into the stock market. But that's like buying on margin, says New York financial planner Gary Schatsky. If you wouldn't borrow against your brokerage account, why would you borrow against your home?

Despite the likelihood of rising rates, ARMs are doing brisk business. So are interest-only mortgages, most of which are also based on variable loans. (For more, see "The Miracle Mortgage.")

In places like Southern California, ARMs and IOs may be the only way for some to buy a decent house in a good neighborhood.

"People are relying on low interest rates," says Shiller. "The warnings about not getting in over your head are not as strong as they were."

If you've already gone a bit over your head in buying, use any extra cash you might come into to shore up that Plan B. That could mean making principal payments or just building up your savings.

If you haven't bought yet and are living in an especially hot market, renting can be a great deal now. In San Francisco, for example, renting can cost about half as much as owning, according to Torto Wheaton Research.

Over the past five years, home values nationally have risen 65 percent while the stock market has fallen. So it's understandable that you've been paying less attention to your IRA than to your crown molding.

But if you are shoveling your cash into your home instead of your retirement accounts, you may be underdiversified. And if you plan to retire near your current home in an expensive market, your equity may not go very far.

"To retire anywhere in Orange County or L.A., you are going to need at least $2 million outside the value of your house," says La Jolla, Calif. financial planner Christopher Van Slyke.

Now, $2 million may not be your number; the point is that for retirement planning, what counts is the money you can tap without hiring movers. If that amount falls short, you may be forced to drastically downsize in your old age or move far away. And, as senior writer Jon Birger notes in "The search for the last affordable beach house", most of the nice spots on the beach are already taken.

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