We all know that we experienced what economists would call an “anomaly” between 2004 and 2011, and as a result, thousands of people who were adversely affected by it have developed a particular point of view concerning the value of real estate and it’s viability as an investment. Remember that time? Prices shot through the roof, then the whole market “crashed.”
Savvy investors understand that their wealth is built over time, and strange occurrences in the market can be averaged over time to reflect common, long-term patterns.
You may often hear from real estate agents that the average rate of appreciation in the Greater Phoenix Metro Area ranges between 4-7% annually. That doesn’t apply in every area of the valley, but that’s why they call it an average.
Appreciation is calculated year over year using a rather complicated formula. Determine a single year’s appreciation is simple, but in order to figure out a pattern of growth over a long period of time dating back many years, this formula must be applied.
A Sampling of One Area of Scottsdale
The area I’ve chosen to highlight lies between Hayden Road and Pima Road, South of McDonald, and North of Chaparral Road. It contains approximately 2,636 parcels according to the tax records, which are public.
In this area, from the year 2000 through the end of 2014, there were 1,132 closed sales recorded in the Arizona MLS, starting with an average price per square foot in the year 2000 of $87.16 through a final average price per square foot of $172.13 in 2014.
Remember, individual home values should not be calculated based solely on price per square foot. There are many variables that will improve or hurt the value of an individual home.
Through the mortgage crisis, the highest average $/Foot was in November of 2005 at $223.00, but despite the massive bubble that we all lived through, over the past 14 years, the average rate of real estate appreciation rounds out at 4.98% annually.
Despite the chaos, we have found a relatively normal appreciation rate based on past performance. This is an important number because it is the number any investor would use to determine what the potential future value of a home might be worth (sans the crystal ball that we all have in our back pocket.)
This average can only be applied to the area that I’ve sampled. It’s not general. It’s specific. It takes time to calculate this information, but it’s important to know what to expect when you compare the value of your home to the current rate of inflation.
Your investment in real estate starts with your equity in the property you own. Whether you pay cash for a property and own 100% of the home or you make payments whereby a portion of your payment is added to your equity, you can apply an average rate of appreciation to that equity to forecast what it will be worth in the future.
If there’s an area you’d like to have analyzed, I’ll be happy to do that for you. Contact me today.