Boom, Bust in Area Beset by Foreclosures

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) (Ross D. Franklin - AP)

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."

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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."