By Mike Bodeen · 20 January 2020
To kick-off the 2020 real estate season last week, I attended the HomeSmart Elite luncheon with Tina Tamboer, senior residential housing analyst with the Cromford Report, and Catherine Reagor, real estate reporter with the Arizona Republic. Few, if any, have their pulse on our market like these local professionals.
Each confirmed what we’ve been sharing with you these recent issues regarding the upward trajectory of the Phoenix real estate market. Bottom line? It’s great to be an owner. It’s not so great to be a renter.
We appear to be entering a period of high appreciation as a result of ever decreasing supply and continued strong demand. But is that healthy?
Below is a very interesting Cromford chart showing month by month appreciation (based on price per square foot) going back 10 years and 20 years respectively.
“We appear to be entering a period of high appreciation as a result of ever decreasing supply and continued strong demand. But is that healthy?”
Humanly speaking we tend to gravitate toward short term outcomes, such as “I want it, and I want it now!” With that mindset, you would have loved buying a home in 2003 and selling it at the peak in 2006, while renting until 2011 (See chart). If you bought in 2006 and tried to sell in 2009 (great recession), your home would have been (if you had a mortgage) well underwater.
If however you bought in 2000 and paid no mind to the seismic gyrations that our market went through between 2003 and 2011 (bottom), you would have averaged 4.5% annual appreciation and no doubt slept just great. And as you could see by the chart, if you bought in 2011, your home rose over 9% each year.
What concerns us presently, however, is the sharp upward price shift that is occurring in the last few months. As I said at the beginning, great news for homeowners but more bad news for renters.
In the short term, values rise and fall. But over the long term, aka Tortoise ownership, residential real estate brings a consistent financial return. Hopefully, however, the greatest return on your investment is your day to day enjoyment of your home.
Market data referenced in this article comes from The Cromford Report.