I read an article on MSN Money recently that got me thinking. It had to do with the Federal Reserve and inflation. Here is the article that sparked my thought. http://articles.moneycentral.msn.com/Investing/ContrarianChronicles/TheFedEmbracesInflation.aspx

It basically stated, the Federal Reserve has been printing more paper to cover debt. They know full well that this only creates more problems down the road by leading to higher inflation. We already see that happening as the US dollar is compared to other currency like the Euro for instance.

Now I add to that, the fact that, China especially is driving up the demand for oil globally. We all know the direct relationship; price rises as demand goes up. We have been witnessing that already as well at the pump and the price of a barrel of oil setting records almost daily. So these two factors alone are a perfect storm, but add to that all the other factors currently affecting the US economy; record foreclosures, flat wages, cost of health care, fuel prices, the list goes on.

So what does that mean for us Real Estate Investors? Well with the cost of everything else higher than ever, there is less money available for people to purchase new or stay in their current homes. Also with the gas prices on the rise, the cost of just getting to work could be a burden. So what to do? Either get a job closer to home, or move closer to work. I expect there to be a rise in telecommuting but probably not enough to offset the other factors much. Without a substantial mass transit system for commuters, I can see many people moving out of the suburbs, especially those in outlying areas, (where all the new construction was sprawling a few years ago). Then without buyers, houses will stay vacant. Is that what is going on now? Probably not, it’s mostly due to the credit crunch, but could get even worse with these other factors.

So they’ll move closer to work centers, closer to the city. Buying a house in the city or very close to it…not without perfect credit and a boatload of cash they’re not. And the cash isn’t coming from the sale of the sub-rural McMansion either because they were lucky to get out with a little more than they paid. So they must RENT! The place to be, in my opinion, given the current set of circumstances and the continued inflation, buy, hold, and rent close to the city and work centers. If you could do that in some of the growing areas of the Sun Belt, you may have a homerun!