Brokers expect tight supply conditions in the market to last for the next 12 to 18 months, as it would take time for new construction to come into the market.

Miller does not see supply easing in Manhattan or elsewhere for that matter, unless credit conditions improve and sellers can get a loan that would allow them to buy a bigger home. The catchphrase he uses to describe the constrained supply conditions nationwide is "housing is local, but credit is national." Tight credit conditions, he points out, have contributed to rising home prices because they have choked supply.

In Manhattan, demand for housing is not going away, although the process of buying a home is proving ever more frustrating for buyers. The city's sky-high rentals continue to rise and fear that interest rates will not stay low forever means buyers aren't prepared to wait on the sidelines for much longer.

"People are tired of waiting," says Teplitzky. She expects prices to rise between 5% and 10% this year and advises her clients to act quickly. "Get your pre-approval from the bank, keep your documents ready and have your attorney ready to go. You need to work ahead of time."

Perlson expects the first quarter to see a huge jump in prices in Manhattan and Brooklyn. "It is going to be a very hot quarter. People who spent the first two months of the year bidding and losing out on properties are trying to get a deal done by spring so that they get a place to move in. There are a lot of people chasing apartments and we are seeing aggressive bids, some significantly over ask."

Are there concerns of a brewing bubble? "We are still in a rational housing market," says Kathy Braddock, co-founder of Rutenberg Realty. "Everything is not flying off the shelf. When you hit the sweet spot, you get multiple offers. But there is no stupid money."

Miller does worry that prices might be rising a little too quickly in some areas, but believes that buyers this time are a little more cautious. "Back then in the boom , buyers were panicked. This time they are more skeptical and less willing to become totally irrational. But if inventory continues to fall and the economy improves a little bit, that could change," he warns.

-- Written by Shanthi Bharatwaj in New York.
Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

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