The houses shown here are among more than 160 Seattle-area  properties currently on the market for $1 million or more.

The 64-year-old brick and wood house in the regal Washington Park neighborhood has views to die for, looking east over Lake Washington to Bellevue and the Cascades and south to Mount Rainier.

The owner put it on the market last month for $1,695,000 - more than double what the 3,080-square-foot house had sold for five years earlier.

But that price was way off. After a quick, intense bidding war, the owner is now waiting to close on an offer of more than $2,600,000 - $1 million over the asking price.

Can this last? Or is Seattle's housing market a bubble waiting to burst?

Housing booms in some parts of the country have led to catastrophic busts. That was the case in the oil-patch states - Texas, Louisiana and Oklahoma - in the 1980s. The markets in parts of California and New England took a beating in the early 1990s.

Historically, Seattle's housing market has been cyclical. The market heats up but then cools, with hot neighborhoods suddenly crashing. Many people who bought expensive houses at the peak of the 1989-90 real-estate boom were "underwater" - sitting in houses worth less than the purchase price - for five or six years.

Like the 1989-90 market, when prices nearly doubled in some neighborhoods over a two-year period, the current boom is being driven by people with money to burn. A decade ago it was people moving to Washington, fleeing recession in California and buying houses here with equity from more-expensive real estate back home. You may remember the stories about how unwelcome some drivers with California license plates felt at the time.

This time, economists and real-estate agents agree that stock-market wealth, which could prove as ephemeral as Californians' equity, is a driving factor in our real-estate boom.

Microsoft money, along with stock options from other young tech companies such as Amazon.com and RealNetworks, is largely responsible for the intense competition for houses at the high end of the market, agents say.

In a recent bidding war for a house in Madrona, for example, all seven bidders were younger than 35 years old, said Lake & Co. broker Mike Skahen.

"There are people with money out there who can throw another $100,000 on a house when they've made a million on Microsoft stock," he said. "Trust me, this is a whole different market than it was three or four years ago. We didn't used to see houses selling for $100,000 over list."

How big is the bubble?

Experts say one sign this market is a bubble is that prices are being driven upward by bidders who seem more concerned about winning the house they want than about what kind of investment they are making.

"To the extent that the market is being pushed by new millionaires, I think some of it is definitely a bubble, but how big a bubble is difficult to know," said real-estate economist Cynthia Kroll at the University of California, Berkeley. Kroll has been following the even more extreme real-estate boom in the San Francisco Bay Area.

Local real-estate broker Mike Gain of Prudential Northwest Realty says that in neighborhoods such as Capitol Hill, Madison Park and Queen Anne, "Houses are going for way more than they ought to be." In the early 1990s, that was a sign of trouble.

But then, the 1989-90 boom makes the current market look a bit tame. Over a two-year period, home prices shot up 50 percent in King County. By comparison, homes countywide have appreciated just 31 percent in the past four years.

In 1991, Boeing slowed down and the King County market flattened overall. But some neighborhoods took hard falls from their peaks. For example, prices on Capitol Hill and in Montlake, after rising 79 percent in two years, fell 13 percent in 1991 and didn't fully recover until 1996. So some buyers who bought at the peak had to wait six years to break even.

Mortgage lender Mark Meadowcroft paid $305,000 for a one-bedroom house with a loft in Montlake at the peak of the frenzy in early 1990. Five years later, he sold at a $77,000 loss. To add insult to injury, the new owner did extensive remodeling and sold the house in 1998 for $510,000.

Department-store executive Blake Nordstrom got caught in a similar bind. He and his wife bought a house in Montlake near the Lake Washington Ship Canal for $640,000. Five years later, they sold at a $15,000 loss.

Could it happen again? Experts believe that buyers caught up in bidding wars are at the greatest risk. Prices on Capitol Hill and in the Montlake neighborhood have risen 65 percent in the past four years.

There's been similar appreciation in Seattle's Central Area, Green Lake, Madison Park, Mount Baker, Queen Anne, Rainier Valley and Ravenna neighborhoods and on Mercer Island and Newport Shores in Bellevue. Agents say that even poorly tended fixer-uppers in these neighborhoods are getting caught up in bidding wars.

On the other hand, short of a stock-market crash, employee stock options could continue to drive the high end of the Puget Sound real-estate market for years to come.

The amount of wealth created is hard to comprehend. Microsoft employees alone cashed in $9.1 billion worth of stock options in the fiscal year that ended June 30, according to the company's annual report.

There are an additional $69 billion in options waiting to be cashed in. A wholesale Microsoft stock-price collapse would be about the only reason a portion of that money wouldn't end up in the real-estate market.

Given that wealth, it is little wonder that King County, which used to have about 30 to 40 home sales a year at $1 million, had nearly 400 sales of $1 million or more last year.

But the effect of this wealth spreads far beyond the million-dollar homes, economists say. The bidding wars at the high end trickle down into less-expensive neighborhoods, as even well-to-do buyers are forced to take their third or fourth choices.

"As people get outbid by Microsoft employees, they in turn outbid buyers of more modest means," said Roberta Pauer, a labor-market analyst for the state Department of Employment Security. "So it affects housing prices not only on high-echelon housing but all housing prices."

When doctors and lawyers are priced out of places like Queen Anne Hill and Mercer Island, they move to the next-most-desirable neighborhoods, such as Green Lake or the Eastgate/Factoria area of Bellevue and, in turn, drive prices higher there.

Real-estate agent Gloria Dresie of Prudential Northwest Realty worked with a buyer who recently lost two bidding wars in which homes sold for $100,000 over their original asking prices of $695,000.

Her buyer eventually gave up on neighborhoods around Lake Washington and got a contract on a home in West Seattle. "It's kind of frightening," Dresie said.

But beyond the bidding wars, several factors are working to support continued rises in housing prices.

Unlike previous housing booms, household income has roughly kept pace with house prices. Economists attribute that to the growth of high-wage jobs, the historically low unemployment rate and the wealth generated by stock-market gains. Taking interest rates into account, housing remained more affordable in the late 1990s than in the mid-'80s for Seattle-area households with median-income.

Local economist Dick Conway said that one thing remarkable about the latest housing boom in the Seattle area is that it's happened at the same time Boeing has laid off 25,000 workers. Barring a recession or a major stock-market correction of high-tech stocks, Conway doesn't expect housing prices to fall.

Ultimately, what may keep Seattle on the path of the San Francisco metro area is that builders are running out of land. "It's the price of land that's driving higher home prices," said Suzanne Britsch, president of Real Vision Research and a consultant to home builders.

The question of land shortage is the subject of a raucous debate between developers, who want to modify the state's growth-management law, and planners, who are working to preserve it.

King County Assessor Scott Noble said scarcity of developable land in the right places is undoubtedly a cause of the current real-estate boom.

"You'll hear people who say there's plenty of dirt and you'll hear people who say there is none at all," Noble said. "I believe the real answer is somewhere in between."

Despite the forces helping to buoy housing prices, Conway predicts that average home-price appreciation will slow from 9.5 percent in 1999 to 6.4 percent this year and 4.3 percent next year.

Job growth has slowed in the past year as Boeing has cut its work force. Interest rates, meanwhile, have gone up. Conway believes these factors will slow the housing market. But he doesn't expect a crash.

"We haven't seen a lot of overall speculative demand. That doesn't mean that it's not occurring in individual markets like Laurelhurst or Madison Park or Capitol Hill," he said. "It may well be that people will be buying homes there for $600,000, and next year they won't be able to sell it for $500,000."

David Heath can be reached at dheath@seattletimes.com.