The real estate bubble has been created by the low interests rates from the FED in 2000s and they blew more air into the bubble in recent years with 0% interest rates which means the crash will be bigger and more painful that it would have been if only they allow it to happen to destroy the bad debt
No it wasn't. It was mainly because of 90s deregulation that led to subprime lending. What you should blame the Fed for his not allowing interest rates to rise when they saw a bubble forming. The low interest helped accelerate the housing bubble, but it didnt cause it.
Also, in case you didn't notice; housing bubbles were a worldwide phenomenon not only USA
Housing bubbles exist because of the one bad property of current money: storage of value. Since current money is not good for that, houses are used. And since they are bought partly for the storage of value function, they acquire exchange value. But since the supply is not fixed, and the demand to hold can change as people move, the exchange value can be lost, and in case of over-supply in an area, their value can go below value for direct use.
So houses are money, but bad money. Bitcoin could solve that problem, making houses generally go down to their value for direct use.
But because real estate stores value, there's plenty of demand for it most of the time. Yes, when bubbles pop, real estate prices can drop below their direct use value, as you put it. But they usually don't stay there for long. What's the issue that you see with this? If real estate bubbles didn't cause the economy to crash now and then, then some other important asset would. That's the nature of capitalism--boom and bust cycles.
I'm curious: how do you think bitcoin would help solve this?
Well houses are used as a store of value, and thus acquires a higher value than its use value. If good money is available, that money will be used as a store of value. Then you don't have to realize half your house to pay for your kids college, that involves moving to a house of half the size, which is costly and maybe not what you want. So at any time you will have a right-sized house, and your savings in good money.
A house is not an investment, it is more like a durable consumer good that takes many years to consume.
The idea that a house is an investment, comes from the fact that it rises in the bubble build-up phase, combined with low interest loans which are the effect of government credit creation.
So it will be solved (if all goes well) in the way that the money value of houses will be sucked into bitcoins instead, leaving the houses with only the use value. I don't have a timeframe, other calamities may happen first.
Real estate is an investment if you collect rent on it. However, the mortgage is a liability but equity is an asset