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Real
Estate: What Happened in Phoenix
Prices
in the Arizona desert got hit harder than anywhere else. So
can you get your dream retirement home for a song? It
depends where you look.
By David Whitford
July
7, 2009
Did you
happen to see the latest home-price stats from S&P/Case-Shiller,
or did you avert your eyes? Here's what struck me: As of March
2009, every metro area in Case-Shiller's 20-city index, without
exception, has fallen double digits from its peak. Ten are
down more than 30%. Eight have dropped more than 40%. Las
Vegas is down 50%. Phoenix? It doesn't get any worse than
Phoenix. According to Case-Shiller, between June 2006 and
March 2009 the average house in Phoenix lost a staggering
53% of its value. Possibly during the Great Depression, but
almost certainly at no time since then, have house prices
in a major metropolitan area fallen by more than half. It's
almost unbelievable. Brother, tell me you didn't buy a house
during the boom in Phoenix!
 I've
been to Phoenix twice in the past six months to look at real
estate. The first time, in November, I squeezed into a crowded
white stretch limo and rode around town all day looking at
foreclosures on a tour led by an energetic realtor who wore
Chanel sunglasses. Time to buy, she assured us, and who could
argue? Prices had come way down. When I went back in May,
however, prices were still going down. And while the pace
of home sales had picked up, nobody I talked to was ready
to call a bottom—not with any conviction anyway. "I
think if we reach our toe down, we can kind of feel the bottom,"
real estate investment adviser Robin Reed, president of ProEquity
Management in Scottsdale, told me over lunch at a strip-mall
bistro on my first day in town, "but we can't rest solidly
on it yet."
My focus on this
trip was a little different. I was looking at places where
retired people live. I wondered about the specific impact
of the bust in those places: How have homeowners fared during
the downturn? What are the prospects for newcomers who might
want to buy now? To be blunt, are there screaming bargains
to be had?
Here are the short
answers: Retirement communities in and around Phoenix got
smacked ("same as other places," says Reed; "it's
real estate") but, in a surprising twist, not as violently
as the broader market; the price drops were less dramatic
and there haven't been nearly as many foreclosures. Is it
a good time to buy? Yes. Will you find a screaming bargain?
You might, if you're patient and alert to the peculiar inefficiencies
of the retirement market (more on that later), but not as
easily as you could elsewhere in Phoenix. That's okay, by
the way. Too many bargains implies a market defined, historically,
by too much volatility and pain. You don't need that when
you retire.
Phoenix is where
the seemingly oxymoronic concept of an active retirement was
born nearly half a century ago. Today it's famous for its
many acres of planned, age-restricted communities built around
golf courses, swimming pools, and artificial lakes, where
property taxes are low because there aren't any schools (there
aren't any kids), yard work is a breeze (yards are all gravel),
and street-legal golf carts serve as second cars.
The granddaddy
of Arizona retirement meccas and the first development of
its kind anywhere in the country, Sun City, turns 50 next
year. It was built by the legendary Del Webb, a hard-drinking,
nonsmoking former owner of the New York Yankees who made his
fortune building military bases (and a Japanese internment
camp) in the Southwest during World War II, and later Minutemen
missile silos in Kansas and Montana, a 30,000-acre housing
development for NASA workers in Houston, the Beverly Hilton,
and several Las Vegas casinos. Bob Hope, Bing Crosby, and
Howard Hughes were among his pals.
Sun City was a
big hit from the day it opened, Friday, Jan. 1, 1960. In its
first weekend, according to an account in Time, Webb sold
272 of the "neat and gay pastel houses" at prices
ranging from $8,750 for two bedrooms to $11,600 for three
bedrooms and two baths. Phase one was completed in the '60s,
phase two in the '70s, phase three in the '80s, block after
block of new construction displacing irrigated fields of grapes
and cotton, gaily marching north up the valley. In the '90s
came Sun City West, Sun City Grand, Corte Bella (that one's
gated), and just in the past couple of years, Sun City Festival,
which sits 10 miles beyond the western limits of developed
greater Phoenix in a dusty, whistling wasteland at the base
of the White Tank Mountains.
Today more than
100,000 people live in the combined Sun Cities, on curvy,
desert-landscaped streets, interlaced with close-cropped fairways
and dotted with lakes and bustling rec centers (supported
by a modest annual assessment) where residents, when they're
not golfing, can swim, bowl, play shuffleboard, and make pottery
and stained-glass trinkets. You (or your roommate) must be
at least 55 years old to live here. Children under 19 can
visit, but they can't stay longer than three months. The newer
the development, the nicer the homes, the classier the amenities,
the more you'll pay. (Every house gets garbage pickup twice
a week; not all come with fancy granite countertops.) If you're
prepared to spend nearly $1 million, you can have two bedrooms,
a patio suitable for a presidential fundraiser, and a stunning
fairway vista in Sun City Grand. Farther south in phase one,
meanwhile, just over $100,000 buys a cozy cottage on 107th
Avenue that's walking distance from the Sun Bowl amphitheater,
which hosts free outdoor concerts in the spring and fall.
Reed
had warned me at lunch that given the economic downturn, the
mood in Sun City might be grim. "It's one thing to be
40 or 50 and know that you've got 10 years for the thing to
turn back around, and that in the meantime you can go out
into the job market, you can do something," he said.
"People in their sixties and seventies really can't do
that. They're feeling a despair right on the heels of what
previously had been kind of a wisdom—'We've been here
before, we know how to batten down the hatches.' For them
it was never about consumption. But they did expect their
savings to be savings and their investments to be investments
and their pensions to be pensions. It went from wisdom to
concern and then, in some cases, outright fear."
That may be true
for retirees in general, but inside the walls that surround
places like Sun City the impact of the downturn is muted.
At the Sun City Visitors Center on the corner of 99th and
Bell, I meet volunteer greeter Bill Burt, 76. He isn't grim
at all. Red-faced and barrel-chested, with a shock of salt-white
hair sprinkled with pepper, Burt grew up driving a cotton
picker in fields not far from where he now lives. He was a
"blood banker" when he still worked, he says, building
and managing blood donation centers all around the country.
Ten years ago he came home. Burt and his wife bought a duplex
condominium in an older section of Sun City. Two years later,
in 2001, they sold at a small loss and traded up to a nearby
duplex on a lake for $161,000. Then came the boom.
By 2005, if we
can believe Zillow.com, the Burts' house was worth more than
$300,000. And today? Zillow says $173,000, or 40% below its
peak. Burt just grins and shrugs. It was only a paper gain;
now it's a paper loss from that high. Meaningless, in other
words, unless he decides to sell, which he has no intention
of doing. He's happy, his wife's happy. His only regret is
that he didn't move to Sun City 10 years earlier. "When
people leave here, they usually go out in a box," Burt
says. "Or they've been cremated, you know. They go out
in a bottle."
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