Hard times in Paradise
The foreclosure crisis catches up with a wealthy, exclusive community in Arizona that once considered itself immune.
In 2008, it looked as if Paradise Valley, the wealthiest, most exclusive community in Arizona, had neatly side-stepped the foreclosure crisis.
Only 38 foreclosures were recorded in this 16-square-mile town that year. Indeed, the median home price for resale detached homes reached an all-time high of $2 million in mid-2008, according to MDA DataQuick, even as values plummeted elsewhere.
"People were buying up million-dollar homes, tearing them down and rebuilding them," says Jay Butler, director of the Arizona Real Estate Center at Arizona State University's W.P. Carey School of Business.
Last year, the bottom dropped out. Like many other luxury-home markets, Paradise Valley joined the foreclosure crisis late: As the economy worsened, companies lost clients and executives lost bonuses or jobs. Affluent residents ran through their savings and credit. And banks, once reluctant to foreclose on major depositors, started taking estates back.
People began talking of "simplifying their lifestyle."
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By the end of 2009, the number of foreclosures had tripled to 114, with an additional 315 notices of trustee sale filed, according to the Information Market, a data provider. In most cities, this paltry number wouldn’t even cause a ripple in the real-estate market. But in this tiny town of about 7,700 homes — owned by celebrities, politicians and businessmen such as Muhammad Ali, Alice Cooper, Dan Quayle, Mike Tyson and Peter Sperling — these foreclosures landed with a thud.
Broker sale signs, once considered too gauche for this tony enclave, with its 12 high-end resorts, began sprouting like weeds, as overstretched borrowers began seeking short sales or letting their underwater custom homes go.
Forget Beverly Hills. Some of the priciest foreclosures in RealtyTrac’s database were in tiny Paradise Valley, and all were recorded last year — such as this palatial property with private theater, walk-in wine cellar, indoor sport court and separate guest house with two-car garage, which was taken back by the bank when its owner defaulted on a $6.5 million note. It’s now listed at $3.5 million.
Spec homes, with up to 10,000 square feet of space and as many as eight bathrooms, continued to be built as late as last year.
- MSN Money: Why short sales are the new foreclosure
The attitude of most people — even those in the real-estate business — was that economic hardship "doesn’t happen here," says Jon Wall of JM Wall Development, a Phoenix custom homebuilder that was also building in less expensive parts of town.
He says he knew the market was in serious trouble when the list of 12 build-to-suit projects he had been contracted for in Paradise Valley all went up in smoke, as buyers couldn’t find financing. Suddenly, nothing was moving.
He sold his last spec home there in late 2008, taking a major price reduction and barely squeaking out a profit. Others weren’t so lucky.
"We were crying the blues," he says. "But a lot of (spec home builders) shut their doors and went under."
What was left
The remnants of this go-go building activity still litter the landscape — and the multiple listing service.
Many of the projects were left unfinished, such as this 8,000-square-foot Tuscan estate, which boasts a "guest casita," a master bedroom with separate sitting room and a "full Irish pub-style bar," but no flooring, landscaping or kitchen countertops.
"We’ve seen examples of where something that was listed for $10 million sold for $2 million," says luxury real-estate agent Walt Danley, who has sold homes in the area for nearly three decades. "The run-up did get a little out of control. It needed a correction, but this is an overcorrection."
Indeed, with a median per-square-foot price of around $289, according to real-estate Web site Trulia, these homes with their deluxe finishes are a relative bargain for those who can scrape together the financing.
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A new nouveau riche?
For those with a steady income, it has meant a chance to finally move into the area that says, "You’ve arrived," Butler says.
Dick and Laurie Wheelock, who own a sprinkler-systems company, traded up from their house in nearby Squaw Peak to a larger 8,500-square-foot spec home built in the Preserve at Lincoln, a new gated community in Paradise Valley near the Arizona Biltmore Resort.
The home, with its wine storage, theater room and three fireplaces, had been originally priced close to $8 million, he said. The Wheelocks picked it up in February for $2.2 million.
"The market just fell apart, and (the builder) was trying to get whatever he could out of it," Dick Wheelock said. "We are enjoying it very much."
- On our blog, 'Listed': Families wading through tough times together
A continued correction
Bargains like these should be around for a while, agents and economists say.
Even as local economists are predicting that the Phoenix market will bottom out this spring and that prices will start ticking back up, no one knows exactly when the price reductions will stop in Paradise Valley.
The number of sales of distressed properties has grown, as many business owners who took out a credit line against their homes to try to save their businesses got deeper underwater and could no longer afford to keep making those payments.
"Short sales will continue to dominate the market for the foreseeable future," Danley says.
Indeed, the number of homes pending foreclosure was at a monthly high of 150 in March, according to the Information Market. And 190 bank-owned properties are on the multiple listing service in Paradise Valley.
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However, locals say, the same things that created the cachet for this town are still there, such as the zoning restrictions that allow no more than one home to an acre, the high-end resorts and country clubs, and the beautiful views of Mummy Mountain.
"Honestly, I think it will come back up," Wall says.
However, he says he thinks the days of building the biggest energy-guzzling mansions may be over.
"People are much more conservative now," he says. "Now it will be maybe 7,000, 6,000 or 5,000 square feet."
GEEZUS, it's no wonder we are IN such a mess....and not ENTIRELY by our own corrupt politicians and government....BUT by the number of IDIOTS who have made such STUPID comments with your non-educated spelling, grammer and LACK of intelligent EXPERIENCE.
I am no college whiz myself but where in BLAZES did your kind come from?......what country (or WORLD) raised you or what CAVE did you evolve from? Comic books, video games Madonna and Dr. Phil don't MAKE the REAL world.
No, you aren't missing ANYTHING. The sad truth IS what monies are being SPENT by whats left of the working class is still being pocketed by the higher up WELL-TO-DO'S and our taxes are also STILL being pocketed, ABUSED and sent ELSEWHERE by the BILLIONS by the HORRID politicians. THIS money should be kept HERE to bring us back from RUIN. We will make ROME look like SHACK razing before it's all said and DONE.
Yea and they are going to bail out the people that over bought their homes. BUT what about those of us that own our homes outright? I bought my house cash from a sail I made in another home but due to all the forclosures my house has lost half it's value from 300,00 that I paid for it 3 years ago to 150,000 now. What about us??
Can we write off the loss? If we make money when we sell we have to claim it as capitol gains BUT what about a loss? Why can't we get our money back for our losses that WE did not create?
Garry 2304-could you tell us more about your family history in Russia.(what year and where)
Your comments are timely,I'm fear.
to person from russia, you probably also know family (or you yourself) experienced filling a whole trash bag full of money to buy a loaf of bread; I am not being facetious, this happens elsewhere as well, except US where treasury is non stop printing....and probably we will be more like japan in stagflation or deflationary envir.....that makes more sense, if people stop buying useless junk...prices will keep going down.....until there are buyers, but our govt keeps artifiically postponing this.....meanwhile, for actual savers in this country, they get penalized for foreseeable future, basically if not spending, they earn ZERO on their money....that is not fair....anyone who bought into bubble needs to learn their lesson....it is not fair to further penalize younger either who already will be penalized in career earning by having no job...and further penalized by artificially propping up home prices, 'modifying' people's mortgages who bought something fifty times their annual earnings, etc.....if 'tea party' and others need to concentrate on inherent imbalances which are perpetuated for other-than-straightforward reasons...we are already 'socialist' when we saved defunct car makers, banks, aig, etc...not now because obama wants univ. healthcare for people to avoid one major medical emergency from bankrupting them.....this is the only GOOD thing happening for everybody....otherwise, bailout/stimulus still taking and redistributing money to others, mostly rich...healthcare helps everybody, students in school trying to find a career without being indebted for rest of lives, being able to spend earnings which help small business,econ.....stop spending at walmart, costs are much higher than you could ever fathom....to our country, our freedoms, etc.....buy local, support your neighbor (not the one pre univ. health care on the public dole while working full time at walmart) support living wages....we are all in this together, or we all go down...it is not all gloom and doom, but we are sure creating this reality.....change is hard, but denial will be much harder going forward...everybody has to pay a price for changing society...some won't like it, these are the ones that have theirs, who have most to lose.....who fear change...it is not dems vs reps....black/white, etc....and I hate those who keep perpetuating this...it is not even rich vs. poor, as many wealthy do good with their money, certain powers that be will resist change and will manipulate you which leads to these fringe movements which are harming real change, which leads us back to square one....and powers to be are happy....tea party, coffee party etc....were on to something when just elect all indep in every election.....see what happens.....I don't think anybody represents middle class now....invention is down, etc...where are inventors, thinkers of tomorrow??? US, somewhere else?? ask why other 'poor' or 'developed' countries with supposedly no 'rights' are outpacing us.....think.
I still see huge mcmansions sprawling etc...while foreclosure are at all time high...how is this even allowable??? could go on and on.....
"THE MASS OF MEN LEAD LIVES OF QUITE DESPERATION."
HENRY DAVID THOREAU
I don't live near this mess.
My Fla. condo in Century Village, Deerfield Beach Fl. is priced, located, and amenities, within 5 minutes from world-class ocean beach is a working man's dream. Check it out!!!
A RICH PERSON IS NOT THE ONE WHO HAS THE MOST.
BUT THE ONE WHO NEEDS THE LEAST!
CASH CASH CASH!
"AS MUCH AS I VALUE HIGHER EDUCATION, SOMETIMES IT SEEMS THE SCHOOL OF HARD KNOCKS PRODUCES PEOPLE WITH ABOVE-AVERAGE COMMON SENSE. MY FATHER WAS SMART, AND THAT, COMBINED WITH HIS WORK ETHIC, PRODUCED AN EFFECTIVE DYNAMO."
WAKE UP AMERICA!
" LUCK FAVORS THE MIND THAT IS PREPARED. "
CASH CASH CASH!
HE WHO LOSES WEALTH LOSES MUCH
HE WHO LOSES A FRIEND LOSES MORE
BUT HE WHO LOSES COURAGE LOSES ALL
NEVER GIVE UP!
CASH CASH CASH CASH !!!!!
YOU HAVEN'T SEEN NOTHING YET!!
WAIT UNTIL THIS CREDIT PARTY IS OVER!
I have lived through the days, the cycle of the real estate market. This down turn was 10 years over due. Those who grieve? That's their problem, and they never understood "the market", and THEY made mistakes. The banks? THEY should be held responsible for making loans to those who, NO WAY, NO HOW, should have EVER qualified for a loan! I live with MY credit mistakes, without losing a home, a car, a job, AND live within my "means" ~ aka, paycheck to paycheck. But, I live in North Eastern Arizona in the MOUNTAINS, where these SNOBS from Scottsdale, Fountain Hills, Paradise Valley, etc, come for the SUMMER, because they can't handle the HEAT. They THINK they are RICH, with HOUSE Payments, CAR Payments, etc. But, THEY have it ALL wrong! I AM the one that is RICH!! I live amongst BEAUTY! I see STARS at night, don't have to deal with traffic and smog. The nearest Lake for fishing is FIVE MINUTES away! I shovel SNOW in the Winter, unlike those SNOBS who won't dirty their hands. SO, I am the WEALTHY ONE!!