What we have today is a recipe for disaster. Many people continue to refinance their homes, taking advantage of lower interest rates to increase their total mortgage obligation. This money is then used for things like paying off credit cards (that are usually promptly run up again), taking vacations, buying boats, furniture and big-screen TVs. These people figure that housing prices will continue to rise 10-20% a year forever and that they will just "re-fi" for another influx of cash in a few more years when they need it.
Well these people are short-sighted, for as another poster pointed out, salaries have only been rising at a fraction of that of real estate. Thus the average mortgage will take an increasingly bigger bite out of one's paycheck if one keeps refinancing all the time.
A 30-year mortgage is a beautiful thing if you get one and stick with it. My parents bought a house in 1968 with a 30-year mortgage. At the time, they were paying $150 a month, which seemed to them to be enormous. But as they moved through the 1970s, that mortgage got easier and easier to pay until such time that it became a nuisance bill only. Now my parents are old-fashioned so they religiously paid that sucker right through 1997 before my father would retire. They never refinanced once nor did they ever take out an equity loan. By the end of the mortgage, my parents were sometimes paying more on the heating bill then they were on the mortgage itself! Well when the note was finally paid off, they sold the house and moved to Alabama, getting over 20x for the house what they paid for it back in 1968. Their retirement was made right there.
Many older people factor in their home equity for retirement. When the kids are grown up and they are ready to retire, they sell the family home and move into a smaller place, using the cash to help fund their retirement. So many younger people are going to have nothing but a humongous mortgage to pay off when the retire!
Personally, I think things are going to get very bad for a lot of these people. I'm 41 years old and I have nearly 60% equity in my home and I'm still nervous about it. If I was like some of these other people my age who are tapped into their homes for 100% (or more) of its market value, I wouldn't be able to sleep at night.