"Is another bubble about to burst?" asked the Economist on May 29, 2003.

The answer then was no. In 2003, the bubble was only about to get bigger.

But the Economist was not too far off. Like the Daily Reckoning, the August weekly was merely too soon.

Three years later, the time has finally come for the real estate market.

"Housing Slump Deepens," signals Bloomberg.

"More House Prices Falling Below Their Assessed Values," comes the report from Boston .

And now, here is the Economist again, warning about "The Biggest Bubble in History."

Prices went up further for longer in more places than ever before, says the magazine's cover story. The numbers are formidable. Here are a few examples from the Economist article:

"The total value of residential property in developed countries rose by more than $30 trillion, to $70 trillion, over the past five years - eclipsing the combined GDPs of those nations.

"Consumer spending and residential construction have accounted for 90 percent of the total growth in the American GDP over the last four years, and more than 40 percent of all private-sector jobs created since 2001 have been in housing-related sectors, including construction and mortgage brokering.

"23 percent of all American houses bought last year were for investment and in Miami, one speculation hot spot, 70% of condo buyers are investors/speculators.

"Last year, 42 percent of first-time buyers - and 25 percent of all buyers
- put no money down."

*** The cost of NOT holding stocks is at a near-record low. There has been no price appreciation in the Dow for about eight years. Had you bought in 1998, you would have paid about as much for a stock as you would today. But there isn't much in the way of dividend yield - averaging only around 2%. You can get 4.83% from a three-month T-bill. You can get 4.79% (yes, the yield curve is upside down) from a 10-year T-note. In either case, you get more than 2% greater yield by NOT taking the risk of being in common stocks.

And what about gold? Yesterday, the price of gold fell almost $17, to $624. What this signals to us is that the gold market is still correcting...and may slip below $600 again before this phase is over. We hope so; we'd like to buy more and still have $600 as our target price.

But will gold pay off when the housing bubble deflates? We don't know. Maybe not soon. Maybe not much. What gold protects against is what happens after the housing bubble collapses...and desperate homeowners demand that the government 'do something' to keep them from getting what they've got coming. Then, in reaction if not anticipation, we expect the real excitement to begin.

*** The International Herald Tribune reported recently that the savings rate for people under the age of 35 is MINUS 16%. At that rate, their debt doubles every 4.5 years.

Byron King sends this note from a friend:

"One of my colleagues - a professor of chemistry for Christ's sakes - just completed a massive blunder. He and his wife earn probably about $110K per year. (He's one of the relatively low paid members of the department, and she works in a daycare facility.) In any event, he inherits $800K from his father. Rather than treating this as a form of financial stabilization capable of kicking out $40K per year of nominal dollars if he conservatively invests it, he goes and gets a $500K mortgage and builds himself a $1.3 million house. Now his mortgage payments and taxes - huge taxes - consume approximately 70% of his gross income. He went from enhanced stability to probably fatal debt spiral because of one fateful decision. And this is one of the smart guys."

Bill Bonner is the President of Agora Publishing.  For more on Bill Bonner, visit The Daily Reckoning.