Christopher Mayer, a Columbia University economics professor said recently "If you're expecting a short-term gain, you should be looking elsewhere," he had argued for many years that land shortages and rising populations would translate into ever-rising prices in the "superstar" cities like New York and San Francisco and LA.

With many of the real estate bulls now waving the caution flag we have clearly reached the time for a re-think on this subject. Before we start going down the "Doom and Gloom" road it should be understood that owning your own home is still the corner stone of the "American Dream" and it will always be that way.

What does it take to fuel that dream, home prices are normally driven by 3 things. The first is low interest rates, the second is the willingness of home buyers to pay for their idea of the American Dream and lastly the ability to attract 1st time buyers to the market.

Let us take a look at Los Angeles as a market place for home buyers, the average home sells for 10 times the average salary. Whatever way you look at it this is unsustainable, no matter how creative the banks and lenders become with their new programs. As it becomes more difficult for the 1st time buyer to enter the market it starts to affect "Move Up" market.

The 1st time buyer will normally start with a one or small two bedroom house or condo with the hope that price rises will allow then to "Move Up" to a bigger 3 bedroom home in a better area within a short period of time, say one to two years. Slower price rises or higher interest rates will put the loan repayments on a new larger home out of the reach of the buyer and this leads to the whole market getting weaker.

The Europeans have an interesting system in place, credit scores have no bearing on the way they calculate your ability to repay the loan. Under the banking and home loan laws you most provide proof of income, once this is done they will offer you the chance to finance up to 4 times your income. Most programs will finance up to 90% of the loan to value of the property this system seems to ensure a steady supply of 1st time buyers along with regular increases in house prices with affordable loans.

LA and New York are the so called "Super Star" markets and not really reflective of the whole county, so your strategy will largely depend on where you live. Local markets are affected by many forces like jobs, the new house market and inflation to name but a few. Homeowners who hold on to their homes for a number of years and pay down their debt do far better than those who refinance every two years taking out the equity they have built up, this really is the Number One Cardinal Sin for homeowners.

The TV and newspapers are jam packed with advertising that is trying to convince you to refinance, generally the only people making any money out of this is the Broker or Loan Officer.

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