Talk of the frothy real estate market permeates the news headlines and continues to be a major point of debate among the bulls and bears. The bulls see "onward and upward" while the bears envision a popping of the bubble in the immediate future. As is normally the case, the best clues for solving the dilemma come from the current headlines when viewed from a contrarian perspective.

You know that fear has run to an extreme when it shows up in the editorial cartoons of the leading news publications. In the June 20 issue of BusinessWeek for instance, there is a cartoon depiction of a house sitting atop a giant inflated balloon representing the housing market with an observer asking, "What bubble?" Such concern over an over-inflated bubble in real estate prices is part and parcel of the "Wall of Worry" the market loves and needs to climb.

Having said that, is it not possible that there could be a real estate slowdown of sorts later in the year? After all, with the 6-year cycle peaking later this year and the rate of change slowdown in the money supply likely to be felt at that time, perhaps a fourth quarter housing market minor slowdown is in the offing. It's difficult to say with any certainty, but it's definitely possible in light of the interim cycle configuration. But the "bubble" will be kept from popping outright for reasons described here.

The "Wall of Worry" referred to above is once again becoming prominent in the financial press, ensuring that the bear's nightmare of a collapse isn't likely anytime soon. A temporary slowdown is one thing, but an outright crash is something else that will most likely have to wait. Here are the latest headlines in the mainstream media that reflect this increasing fear:

"Big surge in price of US homes fuels fears of bubble," "Hedging against a housing bubble," "Regulation and fees add heat to a bubbling housing market," "Something fixed in a frothy housing market," "Sooner or later the Fed will have to cool the housing boom," and "Watch out for shock that will burst bubble."

BusinessWeek recently addressed what the "coming slowdown means for the economy and you" in a cover story entitled "After the Housing Boom." This headline suggests that the housing boom is destined to come to an abrupt halt. A temporary leveling off of prices is one thing, and this would be tantamount to a healthy correction of a prevailing bull market. But once the bubble pops - that's it! And it is my contention that there is way too much at stake - including the U.S. economy itself - for the Fed to allow an outright popping of the bubble at this point. As the headline of this commentary suggests, the housing market is responsible for keeping the economy afloat to a large extent and with the global economy not yet fully integrated (keeping in mind America's key financial role in facilitating the global economic framework) a real estate crash would be nearly an impossibility at this premature stage.

BullandBearWise.com recently observed that the recent economic releases showing the continued rise in U.S. real estate trends - including housing starts and new home sales - are a "poster child for the state of the American economy." Meanwhile, industrial production continues to decline. This was brought home recently with the credit of General Motors and Ford being reduced to "junk" status by Standard & Poors, followed by mass layoffs by GM. (Remember, "As goes GM, so goes the state of industry, so goes the long-term state of the economy.")

The dynamic of this relationship between rising real estate values and lower industrial production do not bode well for the longer-term economic outlook. But in the interim it is real estate that keeps the economy afloat.

Meanwhile, "once-in-a-lifetime" low interest rates allow homeowners to benefit from low yields and enable them to finance the houses of their dreams, including vacation and second homes. The recurring waves of mortgage refinancing give home owners the periodic infusions of cash needed to sustain the currently high standards of consumer spending. In other words, the trend of "hypnotic consumption" coined by Lawrence Patterson continues!

In a recent column in Forbes, James Grant of Grant's Interest Rate Observer offered some worthwhile insights on the housing boom. He pointed out that "people used to pay off their mortgages, then they received the cash when they retired. Now, though, they take out cash as they go." He further observed that last year U.S. homeowners extracted $640 billion, mostly in the form of home-equity borrowing and cash-out refinancing. This "easy money" is keeping the consumer afloat and forestalling economic recession. (It can also be observed that this is perhaps one reason why there is no visible public outrage over the extremely high gas prices of recent months, to wit, when people feel rich they are less likely to complain over having to pay higher prices for necessities. In fact, some consumers take a perverse psychological satisfaction in paying higher prices when they feel they are financially well off).

So "why not lock in low rates while we have them?" asks James Grant rhetorically. Because the super-long-term trend in interest rates is still down as we head into the 2010-2014 "hard down" phase of the long-wave economic cycle, which in turn coincides with the Kress 120-year megacycle. As Anthony Crescenzi wrote in a recent Futures magazine article, "The secular downtrend in rates is more entrenched [than is commonly perceived]....With inflation expectations having moved sharply lower since the last housing bubble [in the late 1980s], a sharp jump in mortgage rates is unlikely." He points out moreover that the continued growth of government agencies such as Fannie Mae and Freddie Mac "will help to support the funding needs of the housing market compared to past years, even as the Federal Reserve tightens credit." Re-read that last sentence for it makes a powerful argument as to why the Fed tightening cycle is unlikely to severely impact the housing bubble.

There will come a point along this declining slope in rates where it won't matter that rates are approaching zero, because hyper-deflation will have by then become entrenched in the financial superstructure and will begin wreaking havoc on all forms of financial assets, including real estate. But we're still a few years from that point along the curve. So for now, the housing bubble continues.