When's the Last Time You Had a Raise?

I'm a firm believer that the “power to buy” shapes home prices, except for when you're in the middle of a nasty housing recession. Of course, low rates don't hurt either. (And then there's underwriting standards.) Meanwhile, the new S&P home price index is out and no surprise there: values are still inching downward, albeit at what looks like a slower pace. But there is something else afoot here: I can't tell you how many friends, relatives, and mortgage bankers I've spoken to in the pass three years who told me the same thing: “I haven't had a raise in years.” If Americans (on average) are making less, than they can afford to buy less. It's as simple as that. So, what to do? Answer: adapt. You stay in your current home, you refinance (if you can), sell and rent (or move in with friends/relatives.) You rip the kid out of private school and send him/her to public school. That fancy travel soccer team with the paid coach? Maybe there's a cheaper one – or 'Rec' ball. (Please, not Rec ball.) You drive the 10-year old car for two more years. Cancel that gym membership.  The odd thing about the “no raises” story is that companies worldwide are sitting on $4 trillion cash. I would assume a large chunk of that is U.S. companies, many of which are reporting record earnings. (Hello Apple.) And at the same time builders are building fewer homes than ever before – but the U.S. population is growing. Eventually, this market will snap back. It has to. Mortgages (and housing) are about math. Of course, there's one wild card here: the U.S. budget deficit. If it's not fixed, all bets are off.