First of all, why do I comment on real estate bubble in my political blog? I think the movement in the housing prices is the most important thing happening in our economy in the last 3 years. Construction created millions of jobs and lifted commodity prices, mortgage refinancing injected hundreds of billions of dollars into consumption, wealth effect is driving people crazy into negative savings. In short, the whole nation is consuming more than it is producing as real estate creates paper wealth.

So, when the bubble had popped? Interesting thing is that many people expect something similar to Nasdaq dropping 5 times from 2000 to 2002. This may never happen with real estate, as any slowdown kills liquidity and just prevents people from selling. Moreover, many people just can't sell as they own more of mortgage then their house is worth. The prices decline just 3-5% every year, but for several years in a row. This is called slow bleeding.

Let just look at the mortgage applications graph:

After hot 2005 we see a normal seasonal decline in December and then sharp rebound in January. Then a drop after feds raised in late January to 4.5%. Currently, mortgage applications are trailing 2005 by 15% and the gap is slowly widening. The purchase index declined 13% from January and is slowly trending down.

What's the answer to my question, when the bubble popped? I think it never popped and never will, instead, it is slowly deflating and will continue to deflate in the years to come.