We are talking about the United States, not a free market. In the United States, the stated policy of the central bank (hint: free markets have no central banks that control interest rates and pick winners and losers) for the last 8 years is to inflate housing prices. The FED and the big banks still have trillions of dollars of worthless derivatives on their books that they have not "marked to market" because they are derived from mortgages on homes that are underwater. The FED has taken over 5 trillion dollars onto its balance sheet in the last 8 years in order to artificially inflate housing prices (not including off-balance sheet loans, guarantees, and other tangible efforts taken to prop up banks and home prices).
This is the opposite in a free market. In a free market, housing prices would plummet with demand and credit availability, and would reach an equilibrium with income. This is impossible in our centrally controlled economy that runs on debt service in which even a small bump in interest rates or a small drop in assets prices will cause the whole scheme to fall apart.
Edit: The Downvotes without replies are somewhat amusing. I can't decide if its out of ignorance of the financial system on the part of those who read the hacker news, or cognitive dissonance. I suspect a mix of both. I welcome anyone who thinks any of the above is inaccurate to chime in.