When you talk about the housing bubble, it's important to understand why housing prices got so high in the first place.
If you can just lend money out of thin air for buying houses (not that they're actually owned in a fully allodial sense, but for convenience sake...), given that land is a relatively fixed supply*, the price is just going to go up and up to the limit of what people can afford to pay back, and in this case, beyond. People made predictions about increasing income that they weren't able to back up.
The problem is that such over-extension is almost inevitable, because failing to participate in the upsurge of credit just makes it harder and harder to afford a house later on. It's like a pyramid scheme in that way, the "early adopters" get a pretty sweet deal, and the late adopters mostly get fucked. (which in a human, long term sense, means that it's a way for the old to fuck over the young...)

Since prices are relative in a fiat currency (that is, a currency not backed by any specific commodity), what these credit bubbles actually do economically, in the long run, is to make durable, resellable goods more expensive relative to consumable goods. Houses are expensive because you can foreclose on them. Cars are expensive because you can repossess them.
College education is expensive because it increases your income (in a sense making you more "resellable") - this is the most horrible one of all, because it's direct labor farming. They loan money so you can go to school, and you can make more money, that you will pay them back in interest. College becomes more expensive, so people need to get more loaned to them, at higher rates of interest. Those who don't take these loans are condemned to exist as second-class citizens for the rest of their life. And of course, given the ratio of population growth to marginal capital growth, eventually you get people who go to college just so they can get a job as a secretary.
Then the labor farming moves up a notch as everyone competes to go to grad school of one sort or another.

Eventually you end up with bankrupt, homeless PhDs who have cell phones and ipods.

The "limit" to the pyramid, and the reason why they can't just keep the boom going forever, is the capital infrastructure. In the long run, you need to have a certain amount of economic circulation for the idea of "wealth" to mean anything at all. So at some point before there's a total breakdown in production, they have to allow interest payments to outstrip money growth and "harvest" what they have sown, financially.

* in an economic sense things like skyscrapers increase the supply of residential land, but it's still fairly limited.