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Unformatted text preview: Project Inflation 1 The connection is very complicated. Inflation usually causes the cost of almost everything to go up, but at different rates. When someone says we have 5% inflation that means some things may have gone up 10% some others not at all. Interest rates on Mortgages usually reflect the investors expectation of future inflation over the next ten years or so. They want a return of more than the expected rate of inflation. The cost of homes reflects somewhat the cost of all the products that goes into actually constructing and building a house including the land, lumber, electronics and everything else. The cost of insurance on your house reflects that inflation also and so does the property tax. Plus, if the general population expects inflation to cause the price of homes and interest rates to rise in the near future a huge demand increase happens. People will buy tons of real estate as a hedge against the loss of assets caused by inflation that will cause house prices to go up even faster than...
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- Spring '11