Should I buy in the Phoenix, AZ market?

Question

Hi,

I have been following Bigger Pockets for awhile now, I have been watching the market for a little over a year, and am ready to own again. I have been a renter for the last 10 years and my current landlord is doing a rent increase by 15%. I am in Phoenix metro area and we are selling for top dollar right now which is a bit of a deterrent but also have seen don't wait to buy the market, buy the market and wait. My goal is to buy and live in the property for a year and then rent it out and buy a second and repeat. I'm a bit afraid of buying so high, even potentially at a peak. I am very open for suggestions, encouragement, voice of reason and flat out honest feedback!

Ben Zimmerman · Answer

Over time, real estate located in high demand areas like Phoenix trend upward in value.  Because of this trend, almost everyone is always buying homes at historically high prices.  The same rules apply to stock market index funds, nearly any time you buy an index fund, chances are that it's price is pretty close to it's all time high.

Buying at the current all time high price isn't necessarily a bad thing.  The fact that the current price is an all time high is completely irrelevant, the only thing that matters is where the price will likely go from here.  Will it keep going up, or will it fall.

While nobody knows if the price will go up or down in any particular year, the biggest thing to remember is that real estate is a long term investment, not a short term play.   In the short term, who cares if the value starts to go down a little?  The home going down in value only matters if you plan on selling it.  If you hold onto it the price temporarily going down is completely irrelevant.   In the long run prices of homes in desirable locations will increase in value, if for no other reason than due to inflation.  So even if the home goes down in value in 2021, or 2022, eventually the market will recover and the price will go up.  The only key is having sufficient amounts of capital reserves so that you can survive a potential economic downfall without being forced to sell the home at inopportune times.

Furthermore, if you can't pull the trigger and buy a home while prices are going up, what makes you think you have the internal fortitude to buy when prices are going down?  It takes some serious willpower to buy a home for 250k when the month previous it was worth 260, and the month before that it was 275.

Melanie Johnston · Answer

@Louise McEwen congratulations on asking smart questions. I listen to the leading housing analysts talk about our market now, our continued appreciation and how many people are moving here for our lifestyle and, for at least the next year, appreciation will continue to rise. Even if we were to have a Black Swan event (pandemic?) our appreciation is projected to slow but not decline and just be more in line with traditional years.

I was talking to a couple today while showing houses and they asked the same question. I think it all comes down to this: Every month you are paying someone's mortgage, either your landlord's or your own. Wouldn't you rather get the tax credit and have a property to launch your portfolio? The analysts are suggesting you not wait any longer. (Tina Tamboer of The Cromford Report). But everyone should do what they feel is best for them.

Here's some data Tamboer shared at Monday night's AZREIA Meeting:

And, as you know, Phoenix rental rates keep going up as well. Pretty strong jump in 2020.

Hope this helps you in your decision making.

Melanie

Louise McEwen · Answer

@Mick Hofmann Thank you so much! I appreciate your feedback! I'm going to move forward on it and plan on holding long and turning it into some cash flow!

Mick Hofmann · Answer

@Louise McEwen People who bought houses 15 years ago in the housing crisis when houses were peaking have seen the values come back. So as mentioned above, while it is scary to buy at a peak, if you hold onto it the values will come back. Most people are talking about a continued sellers market in 2021 along with homes appreciating, and continued low interest rates. So I would say go for it!

Louise McEwen · Answer

@Melanie Johnston Thank you so much for sharing the data and your input! I am quite excited about launching my portfolio! Also, thank you for the reminder of paying someone else's morgage vs my own. It's the start of something big and new and was experiencing some jitters. I appreciate your feedback!

Louise McEwen · Answer

@Ben Zimmerman I appreciate you comparing RE to the stock market, that really helped me put it into perspective of buying high! Because of the unknowns no one can really time the market...either stock or RE. Also, very good point on trying to buy on the dip, I love a good bargain and would probably become gridlocked trying to wait for the "bottom" to hit. Thank you so much for your feedback!

Should I buy in the Phoenix, AZ market?

Most Popular Reply