I would have to argue that what we have been seeing is actually healthy, something that the market needed. Think of it like a marathon runner... sooner or later even the best trained runners need to slow down and take a break or they will burn themselves out, and that is what happened in housing. Things were so good, so strong, and for so long that the market never had a chance to catch to its breath, so once it did run out of energy it had a long way to come back... but hopefully it has almost made its correction and is ready to gear up for the next leg of the race.

Two main culprits led to the boom in real estate... rising prices, and low interest rates. Once prices could no longer rise any higher people were not able to sell their homes for the profit that they had been used to hearing about. That was bad enough by itself, but then the second wave of the problem hit... adjustable mortgage rates rising. This was basically the straw that broke the camels back. Not only were more and more Americans stuck in overpriced, out-of-the-budget homes that they could not sell, now they were also facing the problem of rising rates that were basically pricing them out of their very own homes. Not a pretty picture.

I could, but I will not at this time, discuss the impact that these rising rates and subsequent foreclosures has had, and is still having (sorry Bernanke, but you are wrong in your containment theory) on the broader market... but needless to say, you would have to have been in a cave over the past month not to know how the markets are dealing with the subprime mess.

Ok, so I realize at this point that I have come out pretty bearish in this post, and it is true, I am bearish still on housing, but as I mentioned earlier, I do think that things are about to hit an equilibrium.

Earlier this year when the National Association of Realtors predicted that this would be the first year in history that American home prices would fall it seemed like a deathblow, now the news of falling home prices seems like a helping hand from above. Nothing could be better for the market than to see home prices fall, that is, other than rising interest in mortgage applications.

Well, today we get signs of both. Not only is the NAR still seeing falling prices, but earlier today we also got news that we saw a 3.4% jump in mortgage applications last week. Could the writing be on the wall that times are about to change? Possibly, but don't go betting the farm just yet.

I think we still have a few more months (at best... 10 to 12 months at worst) of watching prices drop. On top of that, there are still trillions of dollars of adjustable mortgages that are set to move higher. This could (and should) continue to drive prices lower. The question becomes, however, at what point are prices going to be low enough for people to be able to sell the properties that they used adjustable mortgages to buy? Hopefully we are close to that level. If these individuals are able to get sell these properties before the rates adjust the country will be a whole lot better off for it.

I'm keeping my fingers crossed!

Michael Fowlkes has worked as a stock trader for seven years and spent the last two years working as an analyst for the online investment advisory service Investor's Observer.