Hard Times in Paradise

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.

 

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."

 

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. The attitude of most people — even those in the real-estate business — was that economic hardship "doesn’t happen here."

 

The remnants of the go-go building activity still litter the landscape — and the multiple listing service. Many of the projects were left unfinished, such as an 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.

 

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. 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. 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.

 

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.

 

MSN Real Estate