New Yorkers looking to buy an apartment should heed the rise and fall of the Tokyo housing market, a real estate analyst said in a recent report.

Manhattan’s housing market has been booming in the last several years, but a closer look shows similarities with the Tokyo market 20 years ago, just before it entered a 14-year decline.

“Going through the archives of the Nikkei Weekly, it just jumped out at me — the parallels were similar in so many respects,” a partner in the Global Real Estate Group of Ernst & Young, Mark Grinis, said.

A combination of low interest rates, employment growth in export manufacturing, and speculative borrowing fueled the inflation of the Tokyo housing market in the 1980s. A bubble formed, however, between the financial ability of buyers and the hyped-up prices in the market. In 1992, defaults on loans and the Bank of Japan’s decision to cool inflation by raising the interest rate, among other factors, sent the market into a decline.

Between 1981 and 1991, housing prices in Tokyo soared by 225%, but after the bubble burst, the market went into a recession that has improved only recently.

Manhattan has been in an equally “euphoric, overly optimistic state,” Mr. Grinis said. The median price of an apartment last year was $770,000, an increase of more than 100% since 2000. The Manhattan residential market is overvalued by more than 30%, according to the calculations of Ernst & Young researchers, Mr. Grinis said.

And, just as in Tokyo, the American housing market is seeing an increase in loan defaults because underqualified buyers are having trouble paying off their loans.

“Manhattan homeowners who believe home values will continue to appreciate are well-advised to look at the warning signs from the Japanese bubble of the 1980s,” Mr. Grinis writes in the report.

During the correction, Tokyo lost 80% of the value gained during a decade-long appreciation. Mr. Grinis said America could be poised for such a loss, or at least flat housing prices for several years to come.

The key lesson from Tokyo’s housing market reversal is that when prices exceed what individuals can afford to pay, a bubble forms and eventually the market corrects itself, bursting the bubble, he said.

Mr. Grinis predicts that the Federal Reserve, contrary to the Bank of Japan, will reduce interest rates to prevent a slowdown of the housing market, which would only depress the economy.

“We really got so far ahead of ourselves that we’re going to have to give back some of those gains,” Mr. Grinis said. “Fortunately, the Fed has lots of hindsight and experience. That puts us in a stronger position.”