Phoenix Foreclosures Boom, Bust in Area Beset
QUEEN CREEK, Ariz. (AP) — Out on Phoenix's suburban fringes, where cement
mixers are fast colonizing what's left of the hay and cotton fields, the day is
winding to a close. The home hour has arrived. But sundown gives away a
troubling secret: Behind dark windows and many unanswered doors, it's clear
nobody is coming home.
By ADAM GELLER – oct 07,
2007 found at ap.google.com
Greg
Giniel sits out in front of his home which is in foreclosure in the Villages of
Queen Creek housing development Thursday, Sept. 27, 2007 in Queen Creek, Ariz.
Giniel says he will try to buy his home back at the foreclosure auction in
November. (AP Photo/Ross D. Franklin)
The ranch home on Via del Palo where the newspaper in the driveway has been
sitting unclaimed since April. The house at the corner of 223rd Court with faded
fliers stuck in the door. The two-story on Via del Rancho with the phone book on
the step.
They're all empty, left behind by a rising tide of foreclosures.
This neighborhood has a still-unfolding story to tell, and it is not always a
comfortable one to hear.
Not long ago, builders were raising home prices here thousands of dollars
week after week. Families pitched tents in front of sales offices and waited for
Saturday morning lotteries to win the right to buy. Buyers — including more
than a few speculators — gambled with loans whose risks were obscured by
euphoria.
This is the tale of how America's real estate boom came to a seemingly
ordinary subdivision called the Villages at Queen Creek, where the whipsaw of
easy credit has led to some extraordinary times.
They were the best of times, for a while. The empty homes, though, raise
serious doubts about what comes next.
As the nation confronts skyrocketing foreclosures, and policymakers try to
contain a symptomatic credit crunch, what is happening here and in scores of
similar neighborhoods is worth considering.
Because while the pressures at work in Queen Creek were extreme, the choices
people made — and the consequences of those decisions — are not so different
from those faced by thousands of other homeowners and their neighbors.
"Honestly," says Joy Kessler, a mother of three boys standing on
the doorstep of the house she and her husband are surrendering to foreclosure,
"if you were in this situation, what would you do?"
The
Gustafsons, from left, Maryann , Keith, 12, Jessica, 14, and Dave, pose outside
their home Sept. 28, 2007 in Queen Creek, Ariz. The family was on the brink of
losing their home to foreclosure but were able to get their lender to modify
their loan so they could keep the house. (AP Photo/Matt York)
In June of 2004, Dave Gustafson took time off from his job as a supermarket
produce manager, and the family headed to Arizona to visit relatives. The buzz
of construction — and word of low home prices — convinced them to have a
look around.
Dave and his wife Maryann liked what they saw.
Back in California, they had contented themselves with less than 1,100 square
feet. But salesmen here showed them floor plans that would give them 2 1/2 times
the space for half the price.
The place they liked the best was a subdivision called the Villages, a
crescent-shaped warren of streets cradling a golf course, quickly filling with
sand-colored stucco homes. The local schools had a good reputation. It was
affordable. There was an extra-big lot on a cul-de-sac, with enough room in back
for a pool.
"The sales person was saying that they (homes) were going up $1,000 a
week," Dave Gustafson recalls. "So when we came to look, we signed
right away."
Builders made it easy. A downpayment of $2,000 to $5,000 was all it took to
get started. Buyers could borrow at low teaser rates, requiring payments of
nothing more than interest.
As promised, home prices were going up faster than the houses themselves.
By the time the family's new home — a two-story model called The Starling
with a cathedral ceiling in the living room — was completed the next spring,
the $179,000 base price had climbed to $220,000.
"We were making money while we were waiting," Dave says.
The Gustafsons picked out Corian counters and maple licorice-finished
cabinets at the builder's design center, and opted for a pool and a whirlpool
bath, adding more than $50,000 to their loan. The interest rate was fixed for
only two years, but they didn't worry. With prices rising so fast, they could
always refinance. And in five or six years, the Gustafsons figured, they'd sell
for $500,000 and downsize.
They hung a plaque over the dining table: "Home is Where Your Story
Begins."
They were hardly the only ones feeling optimistic.
Kris Rowberry was ecstatic when the value of his home in nearby Gilbert
started to take off. So he bought a second one in the Villages as an investment.
"I was thinking, man, if I could have 10 properties, I could just kind
of retire ... and kick back and live off the income," says Rowberry, a
nuclear safety inspector.
But the speculative mind-set confounded buyers like retiree David Pickering.
When Pickering and his wife left Pennsylvania in August of 2004 for a new home
in the Villages, they'd never heard of interest-only loans and the idea of
buying a home as an investment hadn't occurred to them.
They were simply buying a place to live, hopefully for a good, long time.
Around them, though, such notions began to look very old-fashioned.
___
A
realty sign stands in front of one of the many homes that are in foreclosure in
the Villages of Queen Creek Wednesday, Sept. 26, 2007 in Queen Creek, Ariz. So
far this year, some 75 homes in Queen Creek housing southeast of Phoenix have
been reclaimed by banks. (AP Photo/Ross D. Franklin)
The American Dream is a myth overdue for revision.
"There's been a huge shift in the way people view their houses,"
says John Karevoll, who tracks real estate for DataQuick Information Systems.
"Your house now can basically be used as an ATM."
Twenty years ago, families celebrated when they got a mortgage and again when
they retired the loan. A home meant security. The financial commitment promoted
both pride and neighborhood roots.
But Americans have become much more mobile, and looser lending has made it
easier to buy a home and to borrow against its value.
Now a home is more — or less — than a place to live. It is an investment
— a way to make money and finance a lifestyle, says Robert Manning, an expert
in consumer credit and debt at the Rochester Institute of Technology.
The housing and lending industries encouraged that transformation, promoting
not just subprime loans but mortgages requiring little or no documentation of
income, no money down, and interest-only payments.
When easy borrowing combined with a run-up in prices, speculators joined the
fray. In Arizona and other Sun Belt states where foreclosures are rising fast,
homes not occupied by their owners account for an outsized portion of
foreclosures, according to the Mortgage Bankers Association.
But the rise in interest rates and drop in home prices has put the most
pressure on people who live in the homes they own, and who hadn't counted on the
market shift.
It used to be that when things got tough, Americans did everything possible
to protect their homes. But now, faced with foreclosure, many have reordered
priorities — making payments on things like credit cards while neglecting
mortgages, according to the credit scorekeeper Experian.
That is at least partly a matter of psychology. When people who bought almost
entirely with borrowed money see that worth disappear, there's little incentive
to hold on, says Stuart A. Feldstein of SMR Research Corp., a Hackettstown,
N.J., research firm.
Few players, though, seemed to appreciate the chance they might get caught.
"Lenders never said no," says Jay Butler, director of realty
studies at Arizona State University. "Nobody expected this to continue, but
they hoped it would just long enough to get out of it — and they were caught
up in the whirlpool."
___
Real
estate signs are posted in front of houses in the Villages of Queen Creek
subdivision in Queen Creek, Ariz., Sept. 26, 2007. So far in 2007, some 75 homes
in the community outside Phoenix have been taken over by banks, and 74
foreclosures notices have been sent out in the past year, while many more homes
are for sale and rent. (AP Photo/Ross D. Franklin)
By late 2004, the Phoenix real estate market was roaring.
The euphoria reached Queen Creek, so far out the freeway hadn't arrived yet.
If you couldn't afford something closer in, real estate agents told buyers,
"drive until you qualify."
The town's population almost quadrupled to 17,000 in just five years.
Buyers lined up for the chance to make a downpayment in the new subdivisions.
Rowberry joined 200 people one Saturday morning for a chance at 15 lots. He
snapped up builders' price lists. Every week, the homes cost $1,000 to $5,000
more.
Meanwhile, skyrocketing prices in California and Nevada sent investors to
greater Phoenix in search of the next great deal.
"I'm just one guy and it wasn't unusual to get three (calls) a day"
from speculators, says John Wake, a real estate agent. "A lot of them
weren't sophisticated. They'd never invested before."
In the Villages, already half completed, remaining lots looked too good to
pass up. One Southern California investor, Alan Jullien, bought three homes. A
flight attendant, Angela Nazario, bought a two-story house even though she lived
by herself and was frequently on the road. A local real estate agent, Sean
Bacon, bought two.
Homeowners who bought earlier were feeling good. The market spike turned the
Gustafsons' $235,000 home into one worth $380,000.
Across the Valley, homeowners watching their home values shoot up, borrowed
against those gains.
"Talking to a lot of co-workers, everyone was doing the same thing —
taking out lines of credit, milking it for all it's worth," says Matthew
Berends, a homeowner in Surprise, another Phoenix suburb where prices soared.
His home is now in foreclosure. "In one year for a house to go up $80,000,
it's like too easy."
But some relatively modest purchases would prove to be risky gambles.
Greg Giniel and his wife moved into a home on East Sanoque Drive bought by a
friend, with Giniel as a silent partner. What Giniel hadn't counted on was that
the friend had also bought three other homes around the Valley, all financed
with adjustable rate loans that were bound to rise.
One street over, the Kesslers paid $279,000 for a house in the fall of 2005.
With $25,000 down and an interest-only loan, it seemed like a wiser deal than
their old rental.
There was a problem, though, obvious only in hindsight. A market that had
skyrocketed was about to take a plunge.
___
It takes time for a homeowner to get into trouble, but sometimes not all that
long.
In the summer of 2006, the Gustafsons fell behind on their mortgage payments.
Their interest rate was set to jump. In August, their lender started
foreclosure.
Meanwhile, problems began to snowball. High gas prices prompted people to
rethink the idea of owning a home on the outskirts. Investors rushed to sell.
In 2005 — a record-best year for Phoenix real estate — just five homes in
the ZIP code containing the Villages were lost to foreclosure, according to
Information Market, a Phoenix real estate research firm.
Last year, lenders claimed 15, nearly all in the final two months of the
year.
So far this year, 75 homes have been claimed by banks. But with the market so
soft and more adjustable rate mortgages about to reset, that could be just the
beginning.
In the Villages, many of the homes where foreclosure is pending are already
empty, a sign owners have given up.
In a big subdivision — about 1,400 homes — the problems aren't always
obvious. The golf course remains carefully watered, the playgrounds neatly
swept. Many streets, particularly in areas built before prices spiked, are
filled with families who take walks with strollers in the evening or grill
burgers in backyards overlooking the greens.
But on other streets, the presence of homes without curtains in the windows,
with dirt and cobwebs collecting in doorways, is almost eerie.
Even when the market was good, some Villagers were troubled by the large
number of investor-owned homes, empty or filled with renters.
Then late last year, moving vans began to pull up to some homes at odd hours.
Auction notices were posted on front doors. The oleander and mesquite trees that
do so well here in the desert sun turned brown in yards left without water.
In May, the house to the left of the Pickerings' on Calle de Flores went to
foreclosure. Two weeks later, the house on the right followed. Both had been
empty for months. It made David Pickering vaguely uneasy. He couldn't help
wondering whether empty houses might attract vandals.
"The weeds in the back are getting so tall now that they are growing
over the separating wall into my yard," he e-mailed, alerting the
homeowners association to one of the vacancies. "Something must be done
about this. ... The property must be under financial responsibility of
someone."
For a couple of months, landscaper Nick Bourque — who lives next door to
three foreclosed homes in a row on Via del Palo — made a point of keeping the
abandoned yard bordering his free of nutsage and old newspapers.
"I just figured after a while, the heck with it," he says. A real
estate agent scheduled an auction of the home, but found no takers.
On Via del Rancho, Christelle Palmire watched as the home next door was
abandoned to foreclosure. It stayed empty, too.
This Halloween, Palmire plans to take her son trick or treating in a friend's
subdivision where she knows most doors will be answered.
"You drive around this subdivision and there are 'For Sale' signs
everywhere," she says.
The problems become self-perpetuating. Researchers say that each foreclosure
chips away at neighbors' property values. But foreclosures here compound a
larger problem.
Builders continue adding homes to the market at reduced prices. Investors are
trying to sell. Lenders are seeking buyers for foreclosures. Homeowners whose
financial troubles might be solved by selling can't compete, real estate agents
say.
"Sometimes the neighbors don't like you so much because you're one of
the reasons the values are declining," says Kim Gordon, a real estate agent
specializing in foreclosures who is listing two homes in the neighborhood.
"But everyone has got their part in it. The homeowners overextended
themselves."
In many ways, the Villages is lucky because so much was built before the
market soared, says Amanda Shaw, president of Associated Asset Management, which
administers it and 300 other Arizona subdivisions. The company, which once saw
two foreclosure notices a month in its communities, now fields three to five
each day, and some of its subdivisions have been hit much worse.
But it can be difficult to know when homeowners are in trouble.
"There are people who think they don't have an alternative ... other
than to turn the lights off at 1 in the morning, hop in the U-Haul and just
leave," Shaw says.
Now, says Ed Stutz, who lives in the subdivision and pastors the nearby
Family of Faith Fellowship church, at least three Queen Creek homeowners call
each week asking for help paying their bills. That never used to happen. In
September, the church decided to offer budgeting advice.
"They saw a lot of home for a pretty decent price and I don't think they
saw the handwriting on the wall," Stutz says of his neighbors. "People
took a gamble and now it's hurting."
___
It's worth much less than it used to be, but it's home, Dave and Maryann
Gustafson decided.
In May, their lender agreed.
The company modified their loan, temporarily trimming the $1,000 a month
increase in their payment to $400. It's a stretch, but will keep the Gustafsons
in their home at least until the modified terms expire in two years.
Greg Giniel is not so sure. His home, owned by his investment partner, is
scheduled for a foreclosure auction in November.
"I've got to figure out how to buy my own home back," Giniel says.
"If God doesn't pull me out of this one, I don't know where else I'm going
to go."
Things looked just as uncertain to Joy and Paul Kessler, until they did the
math.
They could fight to save their house. But what was the point? It's worth at
least $40,000 less than they paid. They can rent in this depressed market for a
fraction of their monthly payment.
"It's sad to say but honestly, we don't feel like there's anything worth
saving in this house," Joy says. "Financially, we've got nothing to
show for it."
So the couple decided to let the place go. Everyone said it was the right
thing to do.
Still, it doesn't sit right with her husband, a painter and construction
worker. When times were good they made a commitment, Paul tells Joy. Somehow, it
doesn't feel right to just walk away.
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