This chart that shows the market value of today's median US home from 1970 to early 2011. (This was is reproduced from JP's real Estate Charts: http://bit.ly/lFYlrX ) The heavy red line shows inflation adjusted prices, and the heavy blue line shows nominal home prices. The thin red and blue lines are a fits to the housing data from 1970 to 1999, the beginning of the bubble.

This shows what should have been obvious to everyone who wanted to see the truth. That is, 1997 saw the beginning of a eight-year run of steeply increasing home prices that was unprecedented for the previous 30 years.  Just like for the tech bubble (blog discussion at http://t.co/wcq0SYM ), experts were telling the public that the changes in the housing market were due to new forces and would continue.

Historically, there were 3-5 year swings below and above the trend line, but the steep, long rise was the front side of a bubble. The collapse of more than 80% the bubble took only about 3 years and the market is now approaching the historic trend line.

This bubble represented the excess price paid for the homes above what they were "really worth."  Homes were built and bought on speculation of big returns. This speculative building and buying pumped "excess" money into the hands of: 1) mortgage brokers; 2) Wall Street financiers; 3) builders; and 4) the people and companies providing services to #1, #2, and #3. This "excess" money never could be recouped because no one was going to re-buy the overpriced properties.

This is what happened in the tech bubble: Overpriced stocks dropped in value back to their "true" price. When the tech bubble popped, the investors took the loss. In effect, the rich put money into the economy that they couldn't recover.

However, in contrast to the tech bubble, the real estate bubble is going to be paid for by US tax payers.  The US government has "nationalized" the bubble's losses in the form of Treasury debt.