A Brooklyn, 2 bedroom luxury condominium cost $350,000 in 2004. The same exact apartment cost $725,000 in 2007. That's more then a 100% price increase. I don't know about you but I haven't seen too many salaries double in the same period and I haven't heard the news of Brooklyn becoming the hottest place for millionaires. I'd call that a speculative bubble, blown up by low interest rates, forged or non-existent credit checks, and real estate agents fanning the flames for a 3% cut of someone's borrowed money. Maybe if the commission was paid out at the same rate as the mortgage we'd have a bit less of this fake cheerleading.
Let's see what the prices are like when buyers don't have Other People's Money, ie low interest mortgages to throw around. I'm already seeing some 2-bdrm asking prices dropping from $550K to 450K-$475K.