The housing bubble was created by a few factors but was definitely fuelled by speculation. People just like you thinking that in 7-10 years time it will be worth double. Both the UK and US house markets have seen property prices fall throughout 2008 and seen many years of gains wiped off in months.
It started the late 90's and some of the factors were unemployment and interest rates as you mentioned. Unemployment fell down from 10% in the mid 80's to 6% in 2000 and artificially low interest rates were falling at the same time also from over 17% to 4%. Easy credit of no doc zero deposit loans and investor tax incentives including capital gains and negative gearing also contributed.
The scenario played in most countries around the world probably because they also followed the US lead on monetary and fiscal policies at the time. It resulted house unaffordability where house prices reached around 7 times the annual wage, and a bubble just waiting to pop from a recession creating much lower demand and much greater supply.
The stockmarket is a precursor of what happens in the real market. If previous examples of where this has occured both in Japan and the US are anything to go by then roughly 12 months from the peak of the stockmarket is when in hits the real market.
Below is a chart of Australia's Real Estate Index. Note the sharp decline at the start of 2008, as I said if other markets are anything to go by then house prices will fall throughout 2009 and perhaps beyond.
