Is it wise to rent or buy right now? (Phoenix: sale, rentals)

[Glavin]

It's finally the right time to sell our house we have outgrown and bought in 2004. I'm thinking we should rent after we sell this house. My husband thinks we should buy. Are we in another housing bubble? What do you all think?

[HX_Guy]

I would say definitely buy. It's highly doubtful that this is another bubble, and even if it is, you'd still be getting in at the beginning.

[maverick974]

If you can find something right now, it's still a great time to buy. Prices are still low and money is dirt cheap right now if you have to get a loan.
I'm guessing that in a couple of years, these prices will look like a fire sale but I'm certainly no expert.

[MN-Born-n-Raised]

IMHO, our government did everything in their power to stop the home value slide. After all, they absorbed TRILLIONS of dollars in debt through TARP and other "rescue" efforts (see Follow the money: Bailout tracker - CNNMoney.com ). In summary, that last link was a key reason why our national debt skyrocketed.

The government is now holding TRILLIONS of dollars of mortgages notes. IF the market slide more a couple years back, there would be further bleeding to the tune of hundreds of billions of dollars and construction jobs and the side affects (20% of the economy) would be on stand still. What did the government do? They did their best to inflate themselves out of this mess! How? Buy "printing" money (quantitative easing or QE for short) and by pushing the mortgage rates extremely low. Inflation in general is about the only way we can pay back $16 trillion. That is why people are buying commodities. They are betting on some inflation.

Back to housing...All of a sudden in early to mid 2011 the housing market turned, people realized the "bottom" had passed and extremely undervalued homes around Phoenix popped back-up in in a matter of months. That's because homes were so cheap that people in Canada, the northern states, and investors came in and mopped up tens of THOUSANDS of homes. The pent-up demand was released and the fear of missing out on super cheap money began (a sense of urgency which drives people to buy).

So here we are nearly 2 years from the "bottom" and values have gone up 35% around Phoenix and there is no end in site. I propose that so long is mortgage rates are super low we should be fine. Rest assured the policy makers know this. Also, a low interest rate that is different than mortgage rates in general helps keep the interest portion of the national debt less expensive. Therefore, expect money to be cheap unless the market overheats.

Currently, more and more Valley residents who defaulted on their loan are coming back to the market. So that is feeding the demand and the Phoenix area is growing. But if home appreciation slows in a year or two I expect some investors to walk. So long as those who defaulted can later absorb that demand we should also be safe. That said, I don't know the make-up of "investors" and how many homes they bought. I think I was categorized as an "investor" yet I bought our 2nd home for myself.

Now-a-days, people have more skin in the game with a higher down payment. In fact, a large amount of people like myself paid with cash (at the bottom, 40% of the people paid in cash). So the area is no longer as leveraged. We will be fine.

All that said, I still propose Phoenix is "cheap" in comparison to other areas of the country. Back in 2006, that wasn't the case. In summary, I would tell my 21 year old to buy now if she were in the AZ market. My advice might change in a year or two. I will go out on a limb and predict at least another 10% rise in values over the next year or so. But an economic slowdown with government budget problems could change my opinion. A stray Nuke coming from Korea could do the same. You get my drift. Nothing is for sure.

So no. I don't think we are in a "bubble". But your 2004 is also going up the same. So if you hold off for a year, things will get more expensive yet your current home will rise in value too. Less expensive homes will appreciate MORE (percentage wise) than large homes.

Good luck!

[Ponderosa]

Buy. As long as you own a home you participate in the market. If prices rise, so does your existing home and the cost to move up stays relatively the same. But when you are out, if home prices or interest rates go up, then you lose. Of course if they go down you win. But if you own a home, then it is a wash going down as well. You have to pay to live somewhere and ownership is, at the moment, about half the cost of renting an equivalent home.

Interest rates have not been lower in anyone's lifetime than they are right now. Home prices are by and large somewhere around what they were in 2004 as you have noted. Interest rates are going up at least somewhat in the next year or so and home prices are poised to rise another 10-15% in Phoenix this year and almost that much the next as they get back to trend - where they would have been based on wages and rents had the boom and bust not occurred. There is 10 years of 2-3% appreciation since 2004 that is not priced in yet. That is not bubble appreciation.

The downside of buying now is that the selection is limited. There are far less than the usual number of homes to choose from. A new one is a possibility, of course, but they are taking a long time to build and the decorating and upgrade costs can be staggering.

Now, you also need to take into consideration your personal circumstances like job stability, career moves, family growth and shrinkage. But if those are in line, there really has been no time to buy like now in decades. You are probably young and don't have the perspective of history and think home ownership has always been the mess it was recently. I'm not. What we saw since 2004 in the housing market was unprecedented. Home prices rise and they fall, but they always end up tracking inflation. We don't have any deflation going in the US and as MN points out, it is not likely that we will. Moderate inflation is more likely. For most Americans, home ownership is the best financial move they make and the source of most of their net worth later in life.

[New Horizons]

Wow I didn't realize that. My mom and I are going to check out some rentals while we're out there next week. But if she really likes it there we should strongly consider buying soon. Now I'm just praying her breathing and asthma is better in that dry climate.

Originally Posted by Ponderosa

You have to pay to live somewhere and ownership is, at the moment, about half the cost of renting an equivalent home.

[whodiman]

Would I buy another home for an investment right now? Fairly risky so that's a maybe. However, for your own home you can lock in your price now and be hedged against inflation. If the current price makes sense to you, your interest and payments can be locked in for 30 years as well. That sounds pretty darn good to me. I am pretty sure your cost to own a nice home is a lot cheaper than renting. Until that gap is closed, prices will likely to continue to go up for a while. Of course that gap can shrink with higher interest rates or rent prices dropping too rather than just price increases but there is a pretty big gap to close still.

[DetroitN8V]

Like others have said, cash is so cheap right now, IMO it makes way more sense to get into a mortgage at a very low locked rate than paying someone else's.

[MN-Born-n-Raised]

Originally Posted by whodiman

Would I buy another home for an investment right now? Fairly risky so that's a maybe.

I know people don't like these words but it's a perfect time to "flip". The polished homes are selling in hours or days. Yet look at the average days on the market... It's around 100 days. Therefore not everything is selling like hot cakes. For an investment, don't buy a polished home. My place in Surprise needed some work. They had dozens of showings. But in fairness, it was predicted by the "experts" at ARMLS that the bottom was far far away. Therefore I bought it for around $51 a square foot because no one was really buying all that much unless it was a steal-of-a-deal. I put in another $7 a foot to take it to another level and now I am up close to $100K.

So buy that home that no one wants because there is a few things wrong with it and spin it after you polish it up. I'd never "flip" when I bought in early 2011. But back in the late 90's and up to 2004, I spun more than a dozen homes to the tune of a few hundred grand in my pocket. When the market it hot, it's easy to be a genius. You need to understand why it didn't sell and have an eye for deals and what it takes to clean them up. Too many people thought it is easy. But you need to read the tea leaves and know when to get out. If I was in Phoenix full time, I'd be buying and selling. I would have been doing that since 2011. I had a VERY good feeling about the market for about 2 years now...

[miran]

Also the fact that Canadians, northern snowbirds have purchased a home in Phoenix, it essentially reduced the amount of homes in the pool.
I myself was lucky and purchased in 2011 nearing the bottom and don't plan on selling even if I'm up about 50K on my 85K investment.