Inflation and the Real Estate Market

Unfortunately, the high prices of both oil and natural gas are beginning to drive inflation. Even though prices have dropped since their high in the last month after the double punch of Katrina and Rita, there's the possibility that full production of refineries in the gulf could be still some weeks -- or months -- away. In the meantime, the winter heating season will be upon us and demand for oil and natural gas will be high.

The price of gas and oil is driving inflation, affecting everything from the cost of doing business (which will be transferred to customers) to the cost of transportation (which will do the same thing). So it's not just the price increase that you pay at the pumps; it's also the price increases that will happen throughout the consumer goods market.

With this in mind, more and more voices are joining the chorus and are warning of a real estate market "cooling" at best, or a bubble bursting at worst. One of the biggest indicators of trouble is that the price of an "entry" level home is no longer accessible for many (if not all) first-time buyers, depending on where you live. While some regional markets may be okay, the wider picture across the US (and other countries) is not looking promising. Especially when you factor in the fear of inflation and the stern action being taken by central banks -- including the US Federal Reserve. Interest rates in the US have risen steadily over the past year, and we can continue to expect them to do so, as long as the spectre of inflation is looming over the US economy.

Unfortunately, the best advice is still to tighten your belt. The economy is not out of the woods yet, and we still have Wilma to contend with.

Michael

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