The Arizona Republic - November 2006
The number of people losing their homes to foreclosure or falling behind on their mortgages in metropolitan Phoenix is near a two-year high, the latest and most tragic sign of the Valley's housing market slowdown.
Foreclosures started climbing in parts of the country last year, but the metropolitan housing market was still going strong until early spring, when home sales started slowing and then listings spiked. Now, people are losing their homes at a nearly record rate, not only in the West Valley, where foreclosures have traditionally been high, but also in pricey neighborhoods in the East Valley, where credit-card debt levels are higher than average.
Last year, financially strapped homeowners in the Valley were able to escape foreclosure by selling homes quickly for a profit. Others refinanced and pulled out equity that they used to pay off other bills. Many switched to adjustable-rate mortgages with lower monthly payments.
But now, there are many more homes on the market, so houses are selling more slowly and in some cases for less money. The initial low "teaser" interest rates on those adjustable mortgages are climbing, bumping up monthly payments. And many struggling homeowners already have tapped out most of their equity and run up their credit cards.
Economists say that nearly 40 percent of all home loans in metropolitan Phoenix are adjustable-rate mortgages, or ARMS. Nationally, about 30 percent of home loans are ARMS.
As mortgage payments rise, many homeowners fall deeper into debt.
Household debt has climbed to 132 percent of disposable income. It is the first time since the Great Depression that Americans are spending more than they make and saving next to nothing.
Some Valley homeowners piled on debt by taking out second mortgages to buy investment houses. Some of those investment properties are now in foreclosure.
In October, the Valley's notice of trustee sales, which are a lender's first step toward foreclosing on a house, almost doubled from April's level. Trustee notices, which are handed out by lenders when a homeowner is three months or more behind on mortgage payments, are at their highest level since January 2005.
Last month, 1,186 homeowners got trustee notices and 133 homes were auctioned off to the highest bidder at foreclosure auctions on the steps of the Maricopa County Courthouse, according Phoenix-based data firm Information Market.
Julian Baeza fell behind on the payments on his west Phoenix home late last year. He tried to refinance with a private lender but ended up losing his job and then his home last summer.
"I thought I was getting help and could catch up on my payments," he said. "But, instead, my monthly payment went up, and they wouldn't work with me."
The Valley's foreclosure problem is just beginning, said Joann Hauger of the non-profit Community Housing Resources of Arizona, which counsels people on buying homes and holding on to them. People should be leery of deals for help that sound too good, Hauger said. "There are people out there taking advantage of homeowners who are in trouble," she said.
West Valley neighborhoods such as Baeza's typically have some of the highest rates of foreclosures in the Valley, partly because the areas are home to less-affluent or to Spanish-speaking homeowners, who are preyed upon by unscrupulous lenders and scam artists.
But other parts of the Valley, including the poshest neighborhood in Ahwatukee, the Anthem area of the north Valley and far east Mesa, also have high foreclosure rates. Some of the areas, such as the Ahwatukee ZIP code 85045, also have higher-than-average credit-card debt.
Some parts of the Valley, particularly new neighborhoods on the fringes, drew more speculators. Now, many of those investors can't sell homes or rent them for a profit, so they are walking away from them. Foreclosures are climbing in those neighborhoods as well.
"A lot of homeowners are very nervous, and some are in trouble," said Jay Butler of the Arizona Real Estate Center at Arizona State University. "A lot of people gambled on home values continuing to climb like they did last year, and now they are losing that bet."
