Interest Rate and Buying Power

The nation's recovery plan has dumped hundreds of millions of dollars into the economy. Right or wrong it's hard for me to imagine that the government will fail, that as a nation we've doomed ourselves into Third World status. So I have to assume that our financial system will recover and the national economy will see growth once again. And what will happen once the TARP and other stimulus monies trickle down to the masses?

A few people, who want an immediate fix, are screaming about deflation, but most experts predict inflation will be the result of this new money. Prices will go up and interest rates will go up. Incomes will lag as businesses will have a large pool of the unemployed to draw from.

Suppose you could buy a home now but are considering renting another year or two, just to make sure. You have good credit, 20% to put down and a job.

Interest rates right now are less than 5%. You offer $400,000 on a home, put $80,000 down and end up with a PITI mortgage payment of about $2,100.

When interest rates go up to 7%, the PITI will be just over $2,500.

There are lots of calculators online that figure in appreciation, tax implications, and so forth. But what will that $400,000 home cost in two years?