Let's indulge in some basic logic:

1. All credit-asset bubbles burst.

2. U.S. housing is a credit-asset bubble.

3. The U.S. housing bubble will burst.

The only variables are how and when Housing Bubble #2 will burst. That's today's topic.

I've been writing about housing since 2005, as Housing Bubble #1 was inflating. I've participated in / observed housing rising sharply in the late 1970s and the late 1980s, followed by deflation / stagnation. Housing Bubble #1--circa 2003-2008--was characterized by all the classic signs of a mania:

1. Participants denied it was a bubble. When greed displaces prudence, this isn't a bubble doomed to pop, it's the New Normal.

2. Fraud, malfeasance, misrepresentation, speculation and leverage were all rampant. In the euphoric ascent to ever higher valuations, why let foolish little things like income, risk management and credit ratings stand in the way of reaping more profits?

Housing Bubble #2 has rolled over into the decline phase, but this is discounted by the consensus which holds that higher mortgage rates dented the market; once they drop a bit, housing will resume its ascent to ever-higher valuations.

I see a different set of dynamics in play:

1. The 40+ year cycle of interest rates / bond yields has turned. Rates will not go back to zero and stay flatlined for years. Risk and inflationary forces have changed and are not returning to The Great Moderation.

2. The Federal Reserve / federal government effectively nationalized the mortgage industry post-2009 Global Financial Meltdown as the means to stop the decline of housing valuations and re-inflate them via super-low mortgage rates. The Fed bought a staggering $1.2 trillion of mortgage-backed securities in 2009-2010, up from zero--a monumental manipulation of the mortgage market that soon exceeded $1.6 trillion.

How the housing/mortgage market managed to survive without Fed nationalization prior to 2009 remains a mystery.