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Originally Posted by flstf
Our local paper had an article in it this Sunday that claimed incomes were flat and the reason the economy did so well last year was due in large part to people getting equity out of their houses. They were speculating that if there is a housing bubble this year that people wouldn't have the money to spend and the economy would take a dive.
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It's kind of strange. If wages are not going up, what is driving up the price of real estate? It has to be low interest rates and low inflation. But that has to be wrong since we are talking about "real" wages. Problem is that nobody knows for sure. What we really have is the theory of unintended consequences at work.
I think what we have is no "real" wage growth because people don't see the real after tax benefit of wage increases. If a person is in a 50% tax bracket, fed/state/fica/medicare/local/ATM/loss of child tax credit/etc/etc (for some earning that extra dollar may actually cost them more than a dollar in additional tax) they are 50% less motivated to make an extra dollar in wages. On the otherhand if you speculate in real estate, you can make money tax free (up to the $500k cap gain on a personal home), or you at least get to deduct mortgage intrest from taxable income. It becomes very rational for people to bid up the price of real estate and use their homes as an ATM.
The government - always trying to help, but in the end always screwing things up.