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Phoenix Arizona Property: For Buyers and Investors!

Investors and home buyers; Phoenix Arizona property is on sale! Actually, that is probably and understatement of the facts…

Phoenix Arizona was voted, by Yahoo Real Estate in an article titled “7 Cities With Great Real Estate Deals”, the #1 city for real estate deals. Several good reasons are quoted below:

“Good universities in the [Phoenix] area have provided a skilled and educated workforce, which has positioned Phoenix as a competitive force in business,” says Bill Humphrey, senior vice president and managing director of XONEX Relocation, which provides global relocation services for transferring employees.

“Phoenix is projected to see more growth, especially since the technology, green energy and healthcare/life sciences industries have started to put down roots in the area.” Humphrey says houses that were selling for $500,000 before the recession are now in the $300,000 range.

The facts mentioned above a wonderful indicators of the future demand for Phoenix Arizona property, due to more industry moving into the area. It will ultimately provide a need for more people and therefore more housing.

There is also the fact that population continues to rise and is projected to continue rising. In fact, Maricopa County, where Phoenix is located has not experienced a negative population trend or growth rate in 40 years! People continue to migrate to Arizona either for the weather, new opportunities, simply to retire, or keep a Phoenix Arizona property as a vacation home.

All of the reasons listed above bode well for Phoenix Arizona property buyers, but perhaps even more so for Phoenix Arizona property investors!

Here is another, and perhaps more important, caveat to what is happening in the property market: government “stimulus” otherwise known as inflation.

Let me explain… In the US, roughly 70% of our nation’s GDP is made up of consumer spending! This means that 70% of what the US produces is purchased or consumed by its citizens. When the markets took a nose dive a few years ago, the consumer’s ability to spend money did as well. Because the consumer lost so much “wealth” in the form of retirement plans and home equity, consumer spending ground to a halt because people were no longer able to borrow against the equity in their homes to purchase consumer goods or to max out credit cards and then pay them off with a home equity line of credit. There simply was no equity for them to use. The government and the Fed were forced to step in and intervene.

The Fed and all this government “stimulus” and inflation of the money supply is not mean to help you though… (This is the thing most people will never realize without a proper financial education.)

The “stimulus” is designed to reflate housing markets in the country (like the Phoenix Arizona property market which was hit hard) in order to increase consumer spending.

Why would the powers that be encourage spending when in reality we should be saving and producing? The high level overview is pretty simple really. The US is forced to borrow to finance itself. And, guess which number is important to countries like China who have been buying our debt… You guessed it: the GDP. When a country shows a strong GDP, that country is considered to be a good risk. That is to say, it will not default on the loan.

The Fed knows that if they can successfully introduce inflation that property markets will respond with higher prices, simply because there will be more paper money chasing the same amount of goods. Once home prices are reflated, the consumer will spend again and the GDP number will stabilize or show growth. The growth wouldn’t be real, of course… It would just be the result of inflation. People may own more dollars or show more equity in terms of dollars, but the purchasing power of those dollars will be cut.

Enter the Phoenix Arizona property market: for buyers and investors. Because houses are real things made of real things like wood, copper, and stone, money invested in property can be shielded from the effects of inflation! Just as gold, silver and oil prices are rising due to inflation, your property will as well. Goods that go into new builds are costing more, which means the sales prices of new builds will have to be higher in order for a contractor to make money. Existing homes prices will rise as well as renovation costs and maintenance costs will rise.

Say you purchase a home in the Phoenix Arizona property market for 100k, and you then rent the home for cash flow… What you have just done is created a new income stream in the form of rent. And, you have also protected that 100k against inflation!

As inflation enters the system people who save money will lose purchasing power. Investment accounts that average 6% or 8% will actually result in a loss of purchasing power too simply because the Fed can devalue purchasing power at a rate higher than your real return. John Williams of Shadow Government Stats does wonderful work on real inflation rates which are currently hovering around 10%! A retirement account generating a 6% return will actually lose purchasing power at a rate of -4% using JW’s real inflation number!

Buying a property investment in a market like the Phoenix Arizona property market where you have so many positive business and population trends, can result not only in an inflation protected income stream, but also inflation protection for your invested cash because both home prices and rent will rise in an inflationary environment!

The time is now to begin looking at your options. And in general, you won’t get good advice from your financial planner. He or she is just a commissioned sales person and in many cases has no investment experience whatsoever. There are good ones out there, but as Warren Buffet says, “Wall Street is the only place people arrive in limousines, only to take advice from those who take the subway”! It would be funny if it weren’t so true.