Several readers discussed the concept of an echo boom for the housing bubble. "Will we see an 'echo boom' sometime later this year or next year? I wouldn’t be entirely surprised to see a scenario with an echo boom (i.e. suckers rally) in 2007. Echo booms are not uncommon in bubble markets and are typically characterized by a boom > small crash > false bottom > shaky boom w/a smaller peak > full crash to the bottom. It happened with the NASDAQ in 2001. It also happened with the 1929 market crash, where the Dow Jones increased by 38% between Nov. 1929 and April 1930, before continuing its crash."

"If we combine modestly falling home prices in 2006 with interest rate cuts in late 2006 early 2007, it could bring in some buyers priced out/waiting on the sidelines that 'missed their big chance the first time around.' (BTW Don’t catch a falling knife!)"

Another sees it in stocks. "It is happening now with the Dow before it continues its crash…it’s just that this time the time scale is so large that most people don’t recognize it. When the housing market goes, the stock market will, too."

"The crash in the 30’s took 3 years, and we don’t know how long this one will take; it could take longer or shorter, but it is important to know that a crash is coming. Some people on this blog have enjoyed the benefits of the bear market rally, and that is great for them, but I think they should consider getting their money out now before the next phase of the bear market begins."

Another asked, "I really enjoyed your post. I wondered how much you think the falling dollar will change historical bubble experiences."

The answer. "The dollar isn’t changing the bubble experiences, the bubble is changing the dollar. The RE bubble has increased the money supply and put “spending money” into the hands of people through refinancing, and not earnings or an increase in real wealth. This increase of money supply caused by the bubble is a large part of what has caused the dollar to drop in my opinion."

Another added, "The market has been rallying since negative news of R/E has been seeping out. Perhaps the market will surge AS the prices decline (as cash quickly pours into the market) then they both may fall in unison (as investors pull out cause of overvaluation of stock values)."

One reader think one echo boom has already occurred. "I think that’s what’s been happening in San Diego since 2004. The market was through the sky until summer 2004. In the fall, inventory really piled up; listings have been up YOY and sales have been down YOY ever since. We had a mild spring bounce in 2005 which brought prices back from negative territory (from peak through winter), and it’s basically stayed there (pretty flat) ever since. I think this was our DCB. Lots of complacent buyers who believe the 'high plateau' theory. Next step is off a cliff, IMO."