Being able to live in a place you can call home is probably one of the most liberating experiences ever. The house gives you a feeling of warmth, comfort, and stability, characteristics that are essential for our growth and progress as individuals.
Buying a House in Arizona? Here’s What You Should Know
If you are looking at buying a house in Arizona, you have most likely gathered that the Arizona home market has seen many changes in the last few years. For instance, in Phoenix, the inventory of single-family homes has seen a sharp decrease due to rapid price appreciation. This has forced many potential home buyers to shelve their home-buying plans, at least for the time being, and pushed them into the renter pool.
Arizona metro cities (DT Phoenix, Old Town Scottsdale, Gilbert) are seeing this development spree of luxury buildings, with smaller living spaces. While this 4 and 5 Star building development is great for the region, what renters and buyers alike really want are larger (two- and three-bedroom units) that are more affordable.
Let’s take a quick look at some stats shared by Arizona Regional Multiple Listing Service, Inc’s Quarterly Housing Summary by Zip Code (Qtr 3 2021).
- Peoria’s 85342 ZIP code saw the biggest jump in home prices during the past year. The area’s median shot up 42.4% from March 2020 to hit $292,000 in March of this year.
- Chandler’s 85249 ZIP ranked No. 2 for the biggest home price gain, with a 39.4% jump to a median of $585,000.
- In ZIP 85253, home to Arizona’s priciest community Paradise Valley, the median price climbed 34.8% to $2.15 million.
- In North Scottsdale’s 85262, another high-end housing area, the typical price rose 34.3% to $1.175 million
All of these stats point to the potential problems arising in the financial planning of a home, whether you wish to buy or rent one. Let’s take a deep dive into the pros and cons of each option. Perhaps these insights will help you make the right decision when you enter the real estate market looking for a dream home.
Buying a Property
Purchasing a home is a big financial decision for most. So what does buying a house in Arizona entail? And is it worth spending that amount of money?
Considering the inflation that has hit the U.S. in recent months, home prices have risen. But this cannot be attributed to the pandemic alone. Real estate prices have been on a constant rise since the 1970s and no matter what disaster hits us, the prices will never come down. Average selling prices have increased 28 percent since 2009.
Although the initial costs of owning the house may be high, you can be assured that the value of your property will increase. If your property is in a good neighborhood and is near major cities, this can be an investment that pays off exponentially.
Another factor that might interest you in buying your own property is the interest itself. After the pandemic hit, banks have been scurrying to come up with solutions to help people take loans. This has come to us as a boon, as banks are currently offering record-low interest on mortgages, as low as 3 percent. This means that any property you buy, you’re borrowing the money at lower costs than before. Banks are ready to give out loans for interested investors and buyers, so that the money keeps flowing. This isn’t just good for the banks, but for us as citizens, as it is an indication of a healthy economy.
So why don’t we just go out and buy homes? Well, let’s now discuss the dark cloud(s).
If you aren’t careful in your home purchase, you can easily burn a hole in your pocket before realizing that your investment decision wasn’t the most fruitful.
One of the biggest hardships that anyone can face while trying to purchase a home is paying for the mortgage. Although we did say that the interest rates on mortgages are at an all-time low, this doesn’t mean that the mortgages are cheaper. At this point, mortgages can still cost more than monthly rent. And if you buy a property worth a substantial amount of money, it will take you that much longer to repay the loans, and it might happen that the property has lost its value or hasn’t kept up with the inflation.
Also, most mortgages can cost a pretty penny as an upfront down payment. You are paying as much as 5 percent of the house’s total cost which can impact your finances.
Owning a home, as liberating as it is, can have consequences. This can essentially tie you down to that piece of land. For example, if you are forced to move to a new city with a higher cost of living than the one you currently own your house in, you run the risk of allocating most of your monthly salary to paying a mortgage on a home you aren’t living in.
So how does renting look? Is it better than buying? Is it worse? Well, it depends.
Renting a Property
Renting a property is one of the first things that an individual does while trying to make a living. You are finally independent, but you do not currently have enough cash to purchase a home. So what do you do? You rent a place! Doesn’t have to be fancy, just enough to make your life comfortable. Is it any better than purchasing a property? Let’s discuss.
From the get-go, renting is the cheaper option of the two. In most cases, all you need for renting a property is just a few months’ rent as a security deposit and signing the Arizona residential lease agreement. This is probably the most preferred option by students or working professionals, where they might be required to move frequently due to college or work requirements. And since renting is cheaper, it is easier to just look at a property, finalize the paperwork and move in the next day. You are also saving money as you don’t have to pay for other recurring costs like insurance, HOA fees, maintenance, taxes, and so on.
If the rented house is small or is located farther away, the rent might be cheaper than the mortgage. This makes it an excellent option, even for professionals who are looking to settle down but won’t like to pay as much for a home.
This takes us to the second major point, which is the freedom that comes with renting a house. Don’t like a house? Move out. Nosey neighbors? Choose a different property. You are not tied down to any property – emotionally or financially. Also, with the rapid globalization, it is not uncommon for professionals to work various different jobs in different neighborhoods or cities before they plan on settling, which is where renting a place has a clear edge over buying a house.
Then again, every coin has two sides. Although the rent may be cheaper than the mortgage, you’re not owning any property. What you’re doing is paying rent which the owner probably uses to pay back his own mortgage. This can be detrimental for those who are looking to build their own investment portfolio, as they are missing out on constantly increasing property prices. A property worth $300,000 could easily stretch over $550,000 in a few years, but you may not be able to reap the benefits.
Even though the mortgage is higher than the rent, rents are highly vulnerable to fluctuations and may keep on increasing. This is especially true if you’re in an area with great potential. Let’s take the case of Phoenix, Arizona. Because it is a region among those with the highest population growth in the country, it has witnessed a drastic rise in rent.
Also when comparing mortgage (owning) versus rent payments, you are certain how much you’ll be paying in mortgage fees each month…which might end up being cheaper than renting a place for a similar duration. Considering the case of Phoenix, which saw an increase in the number of people choosing to rent versus buy, the rents increased by an eye-watering 19%. This 19% is substantially higher than the lower interest rates you’ll be paying for the mortgage. And as the demand increases, so will the prices.
So What’s the Better Option?
In the end, it all boils down to personal preference and the financial conditions surrounding a person. There is no objective answer to the age-old question; “Should I buy or should I rent?”
Buying or renting are huge financial situations, where the decision must be taken after giving each thought careful consideration. Let’s say you’re single with a steady job, who’s not looking to start a family soon. It might be wiser to rent a smaller apartment near your workplace so that you save money on rent and commuting. Similarly, if you’re a couple or a family who frequently change places to look out for better opportunities, buying a house may not be for you.
On the flip side, if you’re a family person who’s not looking forward to moving anytime soon, and has a stable income, you’ll be doing the right thing buying a home. This will give you enough time for you to follow your hobbies, and the kids and spouse will have ample space to run around and play, which is essential for proper family time. Or if you’re a single, career-oriented person with enough cash in the bank, you can try buying a property, which can be a nice feather in the hat of your investment portfolio.
These points might be enough to give you a clear idea on what could be expected of the current housing market, and what you can do to get the best bang for your buck. After all, good quality of life is a precursor to physical and mental wellbeing. If you’re still on the fence regarding your decisions, talk to Colonial Capital today! We have the best in-house experts who can guide you to buying a house in Arizona and guarantee you peace of mind!