While I enjoy being a lifelong student of economy, I can easily see that there are a great many people way smarter than I am that are trying to make sense of our current set of circumstances.  For most of us, up until recently we may have thought that QE₂ might be something akin to Carbon Dioxide.  But, if you have been paying any attention to the news lately you know that Quantitative Easing is all the hubbub.  And like any present day issue, it is, of course, highly politicized with its detractors and supporters.  Here's the 10 second elevator speech on QE₂: "A lot of really smart people are concerned about inflation, but they are even more concerned about deflation.  So, they are going to print lots of money as an attempt to fight against deflation, even if it leads to higher inflation." Please comment below if you have a more refined or better definition that might shed some light on the issue.

What is the important take away from this?  The large consensus at this point is that inflation is coming.  We hope it will be as kind to us as it can be, but it is most definitely coming!  Okay, but what does that have to do with real estate?  Consider these important thoughts:

1. We are at the bottom of home prices. Their may be some continued dips and vagaries as we slog our way through the remaining foreclosure market.  But, we will not see dramatic price drops over the next year or two like we have seen the last year or two.  If you know you will be holding onto your real estate purchase / investment for at least a few years then you can remain confident in your return.
2. Interest rates are going up, up, up. I tell this to everyone I can as often as I can and I still think it cannot be mentioned enough.  We tend to get so focused on actual cost of the homes, but even more important is to remember the cost of borrowing money!  Rates recently were as low was 4.25% and they are currently still low at around 4.5%, but they are raising by the day. It is reasonable to think they could be back around 6.5% within a year or two.  Let's consider for a moment the differences involved on a 30 year fixed $150,000 loan on a 4.25% interest rate versus a 6.5% interest rate.  At 4.25% the monthly payment would be $738/mo for a total of $266,000 paid over the life of the loan.  Compare that to 6.5% for a monthly payment of $948/mo for a total of $341,000 paid over the life of the loan.  That is quite a big difference!  To put it differently for the money you can spend on a $150,000 home today, next year might only buy you a $116,000 home. That could be the difference between a small 2 bedroom fixer-upper and a nice 3 bedroom that has been totally remodeled.
3. With inflation coming, you want your wealth stored in "stuff", not dollars. If your dollar today will be worth less tomorrow, but you could buy something with that dollar today that will be worth more tomorrow; well, what would you do?

I will leave you with this final thought...  Ever heard of John Paulson?  He is a hedge fund manager that made his name and fortune to the tune of $15 BILLION by betting against subprime mortgages when no one else knew what they were.  Basically he is really smart about the housing market, so when he speaks up, it would be wise to listen.  He recently said this: "If you don't own a home, buy one.  If you own one home, buy another one, and if you own two homes buy a third and lend your relatives the money to buy a home."  Why did he say this?  "The reason is simple: Inflation."