We had a housing bubble and it was huge. (So did a number of other countries.) That is the indubitable fact—it needs a theoretical explanation. The inflation of the U.S. housing bubble lasted six years or so. That is long enough for a lot of people to have made a lot of money from it, but simply to babble “greed” is not an explanation, greed being a constant in human affairs. In an expanding bubble, belief or “confidence” in the profit potential of the rising price of some favored asset, this time houses and condominiums, seems to be confirmed by success on all sides. While the house prices keep rising, everybody wins—borrowers and lenders, brokers and investors, speculators and flippers, home builders and home buyers, credit rating agencies and bond salesmen, title companies and appraisers, realtors and municipalities, and far from the least, politicians. The credit performance of mortgage loans is very good, with very low delinquencies, defaults and losses. More debt seems better. So bubbles are notoriously hard to control. We are now two and one-half years into the deflation of the housing bubble with accompanying defaults, foreclosures and massive losses to both lenders and borrowers, as well as home builders, investors and taxpayers. Note that national average house prices have gotten almost back to their longer-term trend line, also shown on the graph. As gravity pulls a thrown object back down, house prices are coming back to their trend: in retrospect, this hardly seems a surprise.