Cost to Rent vs. Buying in 2022
Owner Occupant Buyers Retreated in 2021
As the cost of purchasing a home increases in Greater Phoenix, the question of whether to rent or buy becomes harder
to answer for some buyers. The overall median cost of a home is currently $425,000, and for a typical 1,500-2,000
square foot home, the median cost is $420,000. The estimated payment, assuming 10% down and including principal,
interest, taxes and insurance, is $2,123. The median monthly rental rate for the same size range, recorded through the
Arizona Regional MLS, was $2,195 in the 4th quarter of 2021; just $72 per month more.
Some buyers might question the advantage of purchasing a home in order to save $72 per month. However, the finan-
cial advantage of owning vs. renting is typically realized for those who own their home for at least 3-5 years.
Let’s assume, hypothetically, that a buyer purchased a home today for $420,000 with a $42,000 down payment (10%).
Over the next 5 years, their home’s value fluctuates up and down and in the end doesn’t appreciate. That may sound
horrifying, however during this time the loan principle has been paid down to $336,000. The homeowner’s equity has
doubled from $42,000 to $84,000 without their home appreciating a dime, and with 20% equity they no longer have to
pay private mortgage insurance. Their payment declines $200. Still a win.
Now let’s assume, hypothetically again, that while our homeowner is paying down their loan, the home value fluctuates
up, down and sideways, but still averages a 6% appreciation rate over 5 years (close to the current rate of inflation). The
home would be then be worth $562,000, an increase of $142,000.
After 5 years, this hypothetical homeowner went from $42,000 to $226,000 in equity, and their monthly cost was nearly
the same as what they would have paid in rent anyway. For this reason, even when the monthly payment required to
buy is close to that to rent, buying still wins in the long game.
Despite rumors of the U.S. housing market cooling off, Greater Phoenix has moved farther into a seller’s market over the
past month. Growing disparity between supply and demand in our market means there is little evidence to suggest price
appreciation will slow in the first quarter. After a strong summer, new listings slowed down in the 4th quarter of 2021,
while the number of accepted contracts remained high. The result is 2022 starting off with another historically low sup-
ply level, and listings under contract, while 7.6% below 2021, still strong with the 2nd highest count since 2014.
It’s an accepted opinion among local analysts that income levels in Greater Phoenix cannot sustain another year of 28%
annual appreciation, especially if interest rates continue to increase. However, seeing there is little relief from home
builders adding more supply to the equation, it’s reasonable to expect the market to respond with a softening of de-
mand. This trend started to reveal itself in the 2nd Quarter of 2021 in a subtle manner.
Since 2014, buyers purchasing their primary residence have made up 70%-76% of total residential purchases in Mari-
copa and Pinal County. In Q2 2021, that percentage dipped to 67%, and declined to 63% by October. While traditional
buyers retreated, competing buyers for 2nd homes and institutional buyers made up of Wall Street-backed iBuyers,
hedge funds and other investment groups stepped in. Price appreciation slowed from an average of 3.3% per month to
While 2022 is coming out of the gate strong, and the Spring is typically the strongest season for buyers, it remains to be
seen how much control investors and 2nd home buyers will take if traditional home buyers retreat. The last time they
ignored affordability issues within the community, everyone lost in the end.
Commentary above written by Tina Tamboer, Senior Housing Analyst with The Cromford Report
©2022 Cromford Associates LLC and Tamboer Consulting LLC
Misha’s Market Commentary
This month we have seen the lowest level of inventory ever recorded – let that sink in- ever recorded! With demand still strong, this means more bidding wars, more multiple offer scenarios and a whole lot more frustration for buyers. Although it’s taxing, I am a firm believer in owning vs renting; the benefits far outweigh the negatives and the negatives are short lived. Since January is typically our slowest month of RE, we should look forward to inventory slightly improving over the next couple of months. As for interest rates, they are still low and shouldn’t be a barrier to purchasing, they are unlikely to be in the 2’s again any time soon. With rates increasing, your buying power may decrease a bit- which may make you adjust your search- but it’s still worth it to buy. Above all else, if you are a buyer- don’t give up! You may want to take a little break, but don’t give up on your goals.
Seller’s look like they have it made- but often sellers are buyers on the back end of every deal…which is also contributing to this low inventory since sellers are scared to sell. If you are thinking of selling, it’s still a great time, not only for value, but for the perks. Most sellers are receiving lease backs on their homes for very low or no cost. This gives you the power to close your sale, then become a strong, non-contingent buyer on your purchase. If values start to plateau, so will the perks- so you may want to take advantage of this windfall.
From my point of view, it’s all about a game plan; whether you’re buying or selling. If you have a goal, there is always a way to get there. You need an experienced agent to help make a realistic game plan and help manage the process.
Contact us to help you manage your own real estate goals and plans at Hello@theneighborlyphx.com