Yes, this equity can go up or down in the short term as the market fluctuates, but that is really in the noise if you look at the long term trend ... if you are only concerned with the short term price movements, then you aught not be investing in buy-and-hold RE in the first place.

Also with the high fluctuation in AZ, cash flow is much harder to come by than appreciation in my opinion. 

However if you own the home free and clear, the cash flow awesome and you are insulated from risks of mortgage rate fluctuations.

However, there are a few other factors to consider when evaluating the risk of this investment:Market risk: Real estate markets can fluctuate, and it's important to consider the potential for changes in demand for rentals in your area.

Make provisions for these fluctuations in cash flow projections.

Make provisions for these fluctuations in cash flow projections.

Every house is different and prices fluctuate greatly depending on the style, type of construction, how many stories, age of the house, location, etc.

Inventory changes are fraught with wild fluctuations, see the Yoy % change graph.

Commercial real estate investors can share a lot about the challenges of collecting from churches - especially if income (collection plate) is fluctuating. 

As of now the markets are going up and providing good price appreciation which can give you net returns that are higher than looking for cash flow but the problem is that when you add time into the equation the markets tend to fluctuate and may even turn negative.