A housing bubble took American by storm, raising home price across the country and promising a lifetime of prosperity for homeowners’ whose home values were going to continue to rise forever.

In a clear violation of the common sense saying which states that if something sounds too good to be true it probably is, millions of Americans bought into the bubble and staked their fortunes, along with their futures, to the dream house with the white picket fence.

The fallout from that collective delusion is evident now in the shattered stock market, long lines at the unemployment office, and rising foreclosure rates across the country.

How could so many Americans be taken to the cleaners at the same time?

Were citizens everywhere just that stupid, or were Americans so willing to believe that the good life was just around the corner that they threw caution to the wind?

The reality is that it was all much more complex.

The decisions of thousands of individual lenders, realtors, and home owners went into creating a housing bubble, just as the decisions of thousands of individuals, realtors and lenders have gone into deflating the bubble.

Those decisions were driven by incentives in the marketplace to buy homes, created by low interest rates, relaxed lending standards, and new financial tools that allowed homeowners to pull large sums of money back out of their homes to use as discretionary spending power.

However, because those incentives were driven by short term factors, the long term scenario was untenable.

Easy credit had created a housing bubble, but with wages remaining steady the underlying cash flow to support easy credit simply wasn’t there for the long term, and individuals had to make decisions that pulled the rug out from under the whole machine.

A QUICK TOUR OF THE HOUSING BUBBLE

REALTY BITES

The rise in home prices, coupled with easy loan terms, got more Americans into homes than at any other time in history. Originally hailed as a good thing, this massive movement of American wealth into realty is turning out to be a nightmare for many. Call it gravity