Phoenix Housing Propped Up Temporarily By Mindless Investors with Cash

05-19-2011 • MyBudget360.com

The market is saturated with investors. In fact, you have investors selling to investors trying to squeeze out profits since household incomes in the region are low and facing the pressures of a declining middle class. A large part of the economy in Arizona was based on home building and construction and much of the gains have now evaporated into the desert sun: In past business cycles you can argue that this is merely a normal trough that is occurring and things will be on the mend soon. I simply do not buy that argument. Energy costs are rising because of global dynamics and it is unlikely we will see $2 a gallon gas ever again (at least in U.S. dollar terms). Per capita income in the state is $25,000 which falls in line with much of the middle class struggles we have talked about. What happens when a family is spending $400 a month for auto fuel and another $400 to keep the home cool in the summer? The cost for energy is higher than the housing payment on a $100,000 home (which is very common in the region): Now why is this important? Many of the investors buying out in the region are buying for a few reasons. First some are buying for cash flow properties. Granted at these levels prices may make sense but again the entire system will crack with $150 a barrel oil. We already hit over $140 a barrel and oil seems to be settling between $90 and $100 for the short-term. What evidence do we have oil will move lower? We also have the Fed and U.S. Treasury trashing the dollar which will make oil cost more in the U.S.