It was reported earlier today that some small businesses are increasing there prices 2% and some think that they should be increasing up to 4%.  The price inflation comes at the hands of  non labor related costs being passed on the consumer.  This is the first sign of inflation hitting the small business markets.  Experts believe that the inflation is soon to enter into the housing market.  If a home purchase is in your near future the next few months could be crucial.   I think it’s safe to blame a lot of the extra expense on gas prices.  In fact prices today are in excess of $106 a barrel.

My personal thought process is bittersweet.  I see a huge long term value of borrowing money at 5%.  On the other hand I see the threat of home values further declining as interest rates rise.  It’s a very hard time to make a financial decision when it comes to housing.  It’s possible that inflation and increased rates in the future could easily wipe out the debt of people who borrowed money at 5%.  However in the short term it could increase foreclosures and short sales.  Any time home values decline in today’s market short sales are sure to follow.  There are too many loans that leave you upside down immediately after purchase.  The foreclosure risk will likely be due to increased expense of food, energy, and services.

There will be some certain opportunity for cash investors are we head closer to that oh so illusive bottom of the market.  Some think it could be somewhere toward the end of 2011 or early 2012 but personally I think we are probably a few years away from the bottom.  Interest rates vs home prices will be an area of strong deliberation for the next year or two.

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