We didn't know that we were happy.

Think back to August 2005. The housing market was soaring. Anyone with an interest-only loan application could make $100,000 flipping condos in Florida. In Phoenix, homes were instant cash generation machines. An investor could buy a pre-construction house with a small deposit, and six months later, could multiply his investment three fold. Washington DC offered the opportunity to convert crack houses into single family homes. HELOCs released all that stored up housing equity into new cars, loft conversions and holidays.

Realtors were the aristocracy, crowned by a booming housing market. A real estate licence was a mandate to generate wealth. Find a listing on Thursday; price it at $500,000 on Friday; hold an open house on Saturday; rest on Sunday; close the deal on Monday; cash the $30,000 cheque on Tuesday, and check the messages in the office on Wednesday. Then start again on Thursday.

Today, the housing boom seems like a distant memory. A gilded time, marked out by prosperity, easy living, and hope. Today, the housing market is in deep and irredeemable crisis. Sales volumes are down; prices are crashing, while inventory is at record highs. There is no end in sight. Looking for the botton in this market is like searching for a floor in the eternal abyss.

Where did it all go wrong? What happened? How can we get back those glorious days of the summer 2005? Who is to blame. Some say that it was rising interest rates that killed the market. Once the rates started to rise, housing affordability deteroriated. Buyers began to desert the market, leaving sellers with unsold inventory. So if rising rates could destroy the market, then perhaps falling rates will restore it.

However, this view does not stand up to serious scrutiny. Rates haven't risen by much. They remain significantly below long run historical averages. No, lower interest rates can not resurrect this much loved and dearly departed housing boom.

So why did the bubble disappear? Where did it go? The answer is straightfoward enough. The buble was crushed by rising indebtedness and revised expectations. Home owners were happy enough to take on more debt while they thought that their houses were generating all that additional unearned wealth. However, as houses increased in value, wages didn't keep up. Home buyers could justify paying for hugely inflated houses so long as they expected that house prices kept going up.

The market was driven by a tautology; prices would keep going up as long as they kept going up. Buyers would buy, and sellers would sell. However, a circular argument typically spins out of control. Participants become dizzy and confused. Feeling nausous, buyers began to get out, regain their composure and realize that the realtors were babbling nonsense.

No, house prices don't go up for ever. Rather, they are tied to people's income and interest rates.Rationality, just like irrationality, can be contagious. Cold hard calculations replaced misplaced optimism. As the buyers departed, the sales volumes declined and inventory rose. Prices are now coming down, slowly but inevitably.

For the realtors, prices are, for the most part, a marginal consideration. It is volumes that matter. For the realtor, a five percent fall in prices, brings no comfort, when sales are declining 30 percent. Realtors are just the first to understand the meaning of a blue cold frozen housing market. Construction workers will follow them, then bankers, and after that, who knows? Real estate crashes have a nasty habit of breaking into the financial sector. Just remember the S&L crisis.The housing boom has gone; after the laughter comes the tears. Crushed expectations, debilitating debt burdens and unemployment; this is the new America.

When will it end? The boom lasted around 14 years, it will take at least as long for it to unwind.