What were housing prices telling us?

Housing I say always behaved fairly normal in supply and demand terms, money got screwed up.  When I look at new starts, inventory and all the rest up to 2006, builders seemed to respond normally with the usual lags.  The over building relative to demand was rarely more than a year out of tune.  Prices peaked  2006 as demand collapsed, but housing starts stopped at that point also.  A one year peak in housing prices is nothing the housing industry can handle when developments take years to complete.

Why did prices go haywire?  Lower interest rates due to the surge in returned dollars that lasted for a year or so.  When we look at what people did with a years worth of paper wealth, we find not much.  Reports posted here say that most money taken out was for home improvement or equivalent capital goods.  So the total cost was a two hundred thousand people paying a two hundred thousand more for houses than fundamentals should allow.

Since that time a lot of other things have happened that would push households to the brink, housing or not.
  Some economists of the Keynesian bent like to talk about the shock of losing wealth, even though one neither bought or sold during the period, one might still have a long lasting hysterical effect, from seeing their house price go way up then way down.  I have a degree in that stuff, and I looked and looked and mass hysteria lasting longer than a few weeks is rare.

What were house prices telling us?  Tons of returning capital, almost all of it from oil demand, caused a temporary spike in inflation protected assets.  People were willing to pay 5% and OPEC was willing to lock up capital.  But demand for oil rose faster than demand for houses; people stopped borrowing so they could cover energy costs, and if people stopped borrowing then there is no demand for long term real goods and paper assets that back them crash.  We hit peak oil earlier than we expected.