A record 3 million U.S. homes will be repossessed by lenders this year as high unemployment and depressed home values leave borrowers unable to make their house payment or sell, according to a RealtyTrac Inc. forecast.

Last year there were 2.82 million foreclosures, the most since RealtyTrac began compiling data in 2005. More than 4.5 million filings are expected this year, including default or auction notices and bank seizures, said Rick Sharga, senior vice president for the seller of default data and forecasts based in Irvine, Calif. There were 3.96 million filings in 2009.

“This will be the peak year, and the main reasons are unemployment and house prices that have stabilized way below mortgage amounts,” Kenneth Rosen, chairman of the University of California’s Fisher Center for Real Estate and Urban Economics in Berkeley, said in an interview.

Government and lender efforts to keep people in their homes are failing to relieve the worst foreclosure crisis since the Great Depression. Unemployment was 10 percent in December, unchanged from the previous month, while the so-called underemployment rate that includes part-time workers and discouraged workers rose to 17.3 percent from 17.2 percent, the Labor Department said Jan. 8.

U.S. lenders permanently modified 31,382 mortgages, or 1 percent, of the 4 million loans targeted under the Obama administration’s foreclosure prevention plan through November, the U.S. Treasury Department said last month. Fewer than half of the 3.2 million homeowners estimated as eligible for mortgage relief by the Treasury actually qualify, according to Herb Allison, assistant secretary for financial stability.

“The government doesn’t have their act together on housing,” Rosen said. “They seem to be pussy-footing around. We need a much more robust effort.”

Obama’s loan-modification program is “destined to fail” because it doesn’t confront the problem of negative equity that is driving foreclosures, Laurie Goodman, senior managing director at Amherst Securities Group LP, told Congress Dec. 8. Homeowners with negative equity, where a property is worth less than the loan, have little incentive to keep paying the mortgage and will “strategically default,” Rosen said.

More than 728,000 borrowers have already received an average $550 reduction in monthly payments, giving them “a second chance to stay in their homes,” she said.

An $8,000 first-time homebuyer tax credit and a $200 billion lifeline to keep mortgage buyers Fannie Mae and Freddie Mac solvent are among the administration’s efforts to date that have supported the housing market, she said.

“Modifications will not be the solution for all homeowners and will not solve the housing crisis alone,” Reilly said.

The number of homeowners with negative equity totaled 10.7 million, or 23 percent, at the end of the third quarter, according to a Nov. 24 report by First American CoreLogic, a Santa Ana, Calif.-based real estate research firm.

Home prices probably fell 13 percent in 2009 to a median of $172,700, following a drop of 9.5 percent the previous year, Walt Molony, a spokesman for the National Association of Realtors, said in an interview. Prices are down 26 percent from the July 2006 peak.

Defaults among prime borrowers are likely to accelerate, adding to a “huge” inventory of properties that banks possess and haven’t yet put on the market, according to Robert Shiller and Karl Case, who created the S&P/Case-Shiller Home Price Index. In September, Goodman estimated that 7 million homes were already in foreclosure or likely to be seized.

The housing market is weighed down by a “a massive supply of delinquent loans” that will end up in foreclosure this year, James Saccacio, RealtyTrac’s chief executive officer, said in a statement Friday.

The end of the government’s tax credit for first-time buyers, scheduled to expire in the spring, and the end of the Federal Reserve’s $1.25 trillion purchase of mortgage bonds, may add to housing woes, Rosen said.

A total of 2,824,674 U.S. properties got at least one foreclosure filing in 2009, a 21 percent jump from the prior year and more than double the number in 2007, RealtyTrac said.

About 2.2 percent of households received a filing last year, according to the company, which sells default data collected from more than 2,200 counties representing 90 percent of the U.S. population.

December filings increased 15 percent from a year earlier to 349,519, the 10th straight month the tally surpassed 300,000. Foreclosures in the fourth quarter jumped 18 percent from the same period in 2008 and fell 7 percent from the third quarter.

Nevada had the highest foreclosure rate for the third straight year in 2009, with more than 10 percent of households receiving at least one filing. December filings fell 22 percent from a year earlier and rose 27 percent from November.

Arizona had the second-highest rate for the year as more than 6 percent of households got a filing. Florida was third at 5.93 percent, followed by California at 4.75 percent and Utah at 2.93 percent, RealtyTrac said.

The other states among the 10 highest rates were Idaho at 2.72 percent, Georgia at 2.68 percent, Michigan at 2.61 percent, Illinois at 2.5 percent and Colorado at 2.37 percent.

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If you thought home prices were bottoming out, you may be wrong. They’re expected to head a lot lower.

Home values are predicted to drop in 342 out of 381 markets during the next year, according to a new forecast of real estate prices.

Overall, the national median home price is predicted to drop 11.3% by June 30, 2010, according to Fiserv, a financial information and analysis firm. For the following year, the firm anticipates some stabilization with prices rising 3.6%.

In the past, Fiserv anticipated the rapid decline in home-sale prices over the past few years — though it underestimated the scope.

Mark Zandi, chief economist with Moody’s Economy.com, agreed with Fiserv’s current assessments. “I think more price declines are coming because the foreclosure crisis is not over,” he said.

In fact, those areas with high concentrations of foreclosure sales will experience the steepest drops, according to Fiserv. Miami, for example, is expected to be the biggest loser. Prices are forecast to plunge 29.9% by next June — after having already fallen a whopping 48% during the past three years.

If Fiserv’s forecast holds, Miami real median home price will tumble to $142,000 by June 2011.

In Orlando, Fla., the second-worst performing market, Fiserv anticipates a 27% price collapse by June 2010, followed by a less severe drop the following year. In Hanford, Calif., prices are estimated to drop 26.9% and continue falling 9.5% in 2011; in Naples, Fla., they’re expected to fall 26.8% and then flatten out.

Other notable losers include Las Vegas, where prices have already fallen 54.6% and are expected to lose another 23.9% by June 2010. In Phoenix values have already collapsed by 54% and could fall another 23.4%. In both cities, Fiserv anticipates the losses to continue into 2011, but they will be less than 5%.

Prices had stabilized

The latest forecast is at odds with the past few months of the S&P/Case-Shiller Home Price index. That report has given hope that most housing markets may have already stabilized because the composite index of 20 cities rose in May, June and July. Nationally, it found that home prices have gained 3.6%.

Brad Hunter, chief economist for Metrostudy, which provides housing market information to the industry, however, expects a change in fortunes, however.

“I’m afraid Case-Shiller may be just a temporary reprieve,” he said.

He pointed out that the tax credit for first-time home buyers helped support prices during the three months of Case-Shiller gains. By the end of November, the credit will have been used by 1.8 million homebuyers, at least 355,000 of whom would not have bought a house without the tax break, according to estimates by the National Association of Realtors. But the market assistance ends when the credit expires on Dec. 1.

Hunter also sees a new wave of foreclosure problems coming from higher priced loans and prime mortgages. He expects a high failure rate for option ARM loans that were issued to prime customers so they could buy homes in bubble markets, such as order prescription drugs without a prescription California and Florida. In those areas, prices for even modest homes had skyrocketed.

Winners

A handful of metro areas will buck the trend, according to Fiserv. Six markets will remain flat, and 33 will actually post gains. The biggest winner will be the Kennewick, Wash., metro area, where home prices have ramped up 8.9% over the past three years and are expected to increase another 3.4% by June 2010.

Fairbanks, Alaska, prices are anticipated to rise 2.5%, while Anchorage will climb 2.1%. Elmira, N.Y., prices may inch up 1.8%.

The nation’s biggest metro area, New York City, will underperform the nation as a whole over the next two years, according to Fiserv. Prices, which have already fallen 21.7% to a median of $375,000, are expected to fall 17.4% by June 2011.

Home values in the nation’s second largest city, Los Angeles, have fallen 43.3% since June 2006 to a median of $313,000. They are expected to dive another 20.2% over by June 2010, and then start to climb in 2011. Chicago prices, which have fallen 25.2% to $227,000, will drop only 4.1% over the next 12 months and then starting to climb.

The Detroit metro area now has the dubious distinction of having the lowest home prices in the country. Prices have dropped 51.7% to a median of $50,000. They’re expected to fall another 9.1% and then stabilize.

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Peoria saw a 27.3 percent drop in the median price of homes sold in the first eight months of 2009 compared with 2008.

The median price on new and online drugs no prescription TEXT-DECORATION: underline !important” onclick=”adlinkMouseClick(event,this,0);” onmouseover=”adlinkMouseOver(event,this,0);” onmouseout=”adlinkMouseOut(event,this,0);” href=”#” target=”_top”>resale homes sold was $172,950, according to The Arizona Republic’s analysis of Valley home values between Jan. 1 and Aug. 31.

At the peak of the Valley housing bubble in 2006, the median price of homes sold in Peoria was $330,789.

Peoria this year escaped the more dramatic downturns seen in neighboring cities: El Mirage had a 42 percent decline in the median price of homes sold and Glendale saw a 40.6 percent dip.

But pockets of Peoria have fared better than others, largely driven by the high number of bank-owned homes . 

Southern Peoria’s 85345 ZIP code saw a 38.7 percent decline in median resale price. About 73 percent of all sales in the area involved foreclosures.

The median price on foreclosed homes in the area was $85,000 compared with nearly $92,000 for traditional resales.

Comparatively, northern Peoria fared better.

In the 85383 ZIP code, just less than half of 816 resales involved foreclosed homes.

Home buyers paid a median price of $235,000, a 22.3 percent decline from the median price of last year’s resales.

Although 2009 has been another year of double-digit declines in home values, area Realtors say they are heartened to see more properties moving faster, particularly in the $100,000 price range. In that lower range, they are seeing first-time home buyers lured into the market by lower prices and the $8,000 tax credit, as well as investors returning to buy up cheap properties.

“There was pent-up demand from people who wanted to buy two years ago, but couldn’t afford it,” said ReMax Realtor Nate Martinez.

The result has been multiple offers for many of the homes in this price range, which is slowly inching values up again.

Some would say 2009 saw the bottom of the housing market.

Foreclosures were down in the past two months, and home sales are 50 percent ahead of last year’s pace.

“There’s hope. I don’t think last year they had any hope,” Martinez said.

But others caution that recovery will be slow, and the number of foreclosures still to come will largely shape the recovery.

“We’re not done with foreclosures. But how much and how deep will be the question,” said Linda Booker with Realty Executives.

Renting out homes has long been a profitable enterprise for many Valley landlords.

The business model was simple: Buy a home. Rent the home for at least the monthly mortgage payment. And when you decide to sell the home, enjoy the Valley’s reliable appreciation in home prices.

That model fell apart amid the housing-market crash. Landlords, like everyone else, saw home values plunge. Rents fell. Many landlords who bought when prices were high now struggle to charge tenants enough to cover their mortgage payments. And this year, as foreclosures mounted, homes were snapped up by investors and turned into inexpensive rentals.

Suddenly, the landlord business has changed. Competition for tenants is increasing as more homes become rentals. Apartment owners are lowering rents, offering free utilities or a month’s free rent, eliminating security deposits and credit checks.

This is the third in a periodic Republic series on how different segments of the housing industry are reinventing themselves to work toward a recovery. The new reality for Valley landlords is still taking shape. Longtime landlords slammed by the housing crash find they have to settle for less income, take more risks on tenants’ reliability and try to keep their properties out of foreclosure. New landlords see opportunity in the low housing prices.

There is no way to count the number of different types of landlords in the Valley. There are people who own a number of houses as their primary source of income. Other people buy one or two rentals to supplement their income and sell later for retirement or a college fund. Some landlords are local. Others are out-of-state investors. Some landlords manage their own properties. Others pay a fee and turn them over to property management firms.

What they all share now is a rapidly shifting landscape and no clear solution yet as to how to re-establish that simple business plan. And that may not be possible until the housing market in general stabilizes and the variables in making money through rentals also settle.

Those variables include how much to charge for rent to stay competitive, the costs of maintaining properties and the challenges in dealing with problem renters.

Competition

Among many things that have changed for landlords is the level of competition for reliable tenants.

Because of the economic downturn, more people are losing jobs and unable to always pay their rents. Record foreclosures and rising bankruptcies in the Valley also mean more renters with less-than- stellar credit records.

More foreclosures does mean more people who have lost homes turn to renting. But supply still exceeds demand as the number of new homes for rent and vacant apartments is still larger than the pool of tenants.

So landlords are lowering rents to attract tenants. At the same time, apartment owners are lowering rents, giving away flat-screen TVs, iPods, scooters or a month of free rent.

Rent rates used to be a function of covering mortgage payments for many landlords. More downward pressure on rents comes now from people who recently paid cash for inexpensive foreclosure homes and can ask for less in rents. With Valley home prices down 50 percent from 2007, longtime landlords are feeling the pinch.

Rents on Valley homes are now down 10 to 25 percent from last year, depending on the area, landlords say. The drop in rents means many longtime landlords can’t cover their mortgages anymore.

David Gudmundsen is offering new tenants $50 off their rent for six months in his 20 Valley rentals.

“The rental market really got tough, probably because apartments are giving away the farm to get tenants,” said Gudmundsen, a real-estate broker with S.J. Fowler/GMAC Real Estate. He purchased most of his rental properties during the past two years. Gudmundsen is a longtime Valley landlord who owned 80 rentals in metro Phoenix during the late 1990s but sold them before the market’s downturn in 2007. Homes with rents below $1,500 a month are now the most popular in the Valley.

“Just look at Craigslist or other online sites that list rentals. There’s a lot of Valley homes for rent priced below $1,500,” said Mike Sargent, a former executive with a high-tech firm who became a Valley landlord after the dot-com crash. “That’s what most people can afford now.”

Sargent recently dropped the rent on a Chandler home with a pool to $1,195. In 2002, the rent was $1,795.

“Everyone is dropping their rents now,” said Dean Wegner, a Valley mortgage broker and landlord, who is president of Arizona’s Independent Rental Owners Council. “It’s not only about getting tenants; it’s about keeping those who can pay.”

To keep a tenant, Wegner recently dropped the rent $100 on a north Phoenix home with a swimming pool to $850.

In the Valley’s current housing market, rental homes can sit empty for months. Cutting rents means lost income for landlords but perhaps less than losing several months of rent in a row.

“My business partner and I pay close attention to our renters, and we have been lucky,” said Phoenix City Councilman Tom Simplot, who owns five central Phoenix homes. “We lowered rents 20 percent this year because we want to keep our tenants.”

One place tenants can go if they choose to leave is sometimes to a nicer house down the street that was lost in foreclosure, purchased and turned into a rental for monthly payments well below recent mortgage payments. This is especially common in the newer neighborhoods that have been hard hit by foreclosures.

There’s no exact figure on how many Valley homes have been turned into rentals, because some buyers don’t disclose their intentions on property records.

As many as half of the 50,000 foreclosure homes to be sold by lenders in 2009 have been purchased by investors, according to property records and market watchers. Many investors are renting out the houses until home prices climb again and they can sell for a profit.

It’s a renters market now, and most landlords must drop prices to fill their homes, even if they lose money on the deals.

Maintenance

Another variable in the cost of doing business for a landlord is property maintenance and fixing damages caused by tenants.

Before the housing and economic crash, rental rates were rising with home prices. As rents drop, longtime landlords lose money on rents and lose the extra cash to maintain homes.

Landlords used to be able to charge tenants deposits equaling one or two months of rent, as well as non-returnable cleaning and maintenance deposits. But since the crash, many renters don’t have the extra cash for big deposits. And landlords have less leverage to ask.

The competition for tenants forces some landlords to drop required security deposits, which, combined with declining rents, makes it harder to cover regular wear and tear on a home or those unexpected expensive repairs. In some cases, landlords are even skipping credit and criminal background checks, which can lead to problem tenants.

“Landlords are lowering the bar on screening tenants and taking deposits,” said Margie O’Campo De Castillo, a Valley real-estate agent and landlord with two rental homes. “Homes are being wrecked, and landlords stuck with big cleanup fees. It’s hard to make money on rentals now.”

A friend of De Castillo has a Phoenix rental home that was recently vandalized by tenants. The friend will lose several months rent and spend thousands of dollars on repairs.

Michael Rhone lives in California and is a partner in seven Valley rental homes. He received a call from a Valley police department a few months ago about a possible meth lab in one of his rentals. “I had to fly in and deal with that. There wasn’t a meth lab, but tenants were involved in other illegal activities”

Rhone said the house is “trashed” and he’s thinking about letting it go into foreclosure instead of spending the money to fix it up because he’s already losing so much money and can’t sell for a profit now.

Just as some homeowners caught in foreclosure strip or vandalize their homes, the same thing can happen with tenants. According to Valley landlords, more renters are wrecking or stealing appliances and fixtures because they’re being evicted for not paying rent or because the home fell into foreclosure and they have to leave.

Sargent, who is co-owner of the property-management firm HomeLovers, said in today’s rental buy drugs without a prescription market, a landlord should have enough money to cover half a year of mortgage payments in case they can’t collect rents, have to fix homes or pay legal fees for evictions.

Despite the competitive pressures upon landlords, Sargent warns landlords to still be prudent. “Don’t forgo deposits just to attract a renter,” he said. “Renters must have some skin in the game now.”

Collecting rents

Before the economic downturn, fewer Valley residents were struggling to pay their bills. Now more renters, like homeowners, are falling behind on their bills each month.

So landlords sometimes have to find ways to keep a steady flow of payments coming in.

“I know not everyone has perfect credit and everyone makes mistakes, so I won’t do background checks,” said Elaine Balderas, who owns four south Phoenix rental homes. She drives by her properties every Sunday to check on them and usually collects rent on one of those trips.

“I can’t charge ridiculous deposits,” Balderas said. “But I want to see a recent pay stub, and I want them to look me in the eye and tell me they will pay.”

Julie Bieganski has had rental homes in the Valley for the past decade. She recently rented out a former foreclosure home in north Phoenix for $850 a month.

“You could get $900 a month in that area,” she said. “But the tenants are great, and their employer cuts me a direct check for the rent and it goes in my account as a direct deposit. This way I don’t have to chase around for the rent.”

When tenants stop paying rent, landlords have to decide whether to evict them and potentially go months without income or try to work out a deal hoping they’ll catch up on their monthly payments.

One of O’Campo de Castillo’s longtime renters recently lost his job and was going to move out.

“I told him, ‘Wait, we all are struggling now. Stay put. You need a home. Let’s give this a month or two,’ ” she said. “He is now paying his full rent again. It’s much better to lose some money for a few months than have the home empty or look for another good tenant in this market.”

More landlords are now faced with evicting tenants for not paying. It can be a costly legal process involving hiring a lawyer, filing court documents and paying to store anything they leave behind.

Rhone said three of his renters are behind on their payments. He is in the process of evicting one and is considering going through the legal process to have that tenant’s wages garnished to pay back rent.

When Gudmundsen had to evict a woman from one of his rental homes, she left almost all of her belongings. Under Arizona law, Gudmundsen had to give her more than a month’s notice to collect her belongings.

He had to pay to have them stored and pay for a public notice announcing they would be sold if she didn’t collect them.

To save money, Balderas skips formal eviction processes with her tenants, because she doesn’t have them sign leases.

Instead, Balderas has tenants sign an agreement stating when rent is due, and if they don’t pay, they have a month to vacate. To evict, she pays $37 to take them to small-claims court.

Earlier this year, she had to evict a tenant who hadn’t paid rent for a few months because she lost her job. “It wasn’t fun, and she (the tenant) tried to beat me up,” Balderas said. “But she’s out, and I found a better renter.”

Opportunities

Despite the downward pressure on Valley rents, the housing market’s downturn is enticing more people to become landlords or to expand their portfolio of rentals.

Landlords who can afford to buy Valley homes now, maintain them and hold on to them for several years are setting themselves up for the market’s recovery.

“Investors need to have a strategy if they want to buy rental homes now,” said Beth Jo Zeitzer, president of R.O.I. Properties. Balderas is looking for more rentals to buy but only in south Phoenix. She looks only at brick- or block-built homes that her husband can fix up.

Landlords are also seeking out people for whom renting is a good option.

“When I talk to renters who have recently lost a home to foreclosure, I usually find their mortgage was twice what I am asking in rent,” Gudmundsen said. “Unfortunately, a lot of folks are losing their homes to foreclosure. Those people need places to rent.”

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Oct. 1 (Bloomberg) — Drive up to the Peaks Corporate Park in north Scottsdale, Arizona, and the only person you’ll encounter at the luxury office complex is a security guard.

The development was planned to offer executive suites with views of the McDowell mountains, neighbors such as General Electric Co. and a location just minutes away from Jack Nicklaus’s Desert Mountain golf courses. Plans to lure tenants haven’t materialized and today the complex in this city next to Phoenix is empty, the entrance blocked by a traffic barricade.

Delinquencies in the Phoenix area on loans backed by office, industrial, retail and apartment properties have risen more than five-fold since March, according to data compiled by Bloomberg. The Phoenix region has the second-worst U.S. delinquency rate, behind Detroit’s 10 percent. In Phoenix, the economic recovery looks a lot like a recession.

“A commercial recovery in markets that are heavily dependent on construction will be slow, which means the overall recovery will lag the nation as a whole,” said Susan Wachter, a real estate professor at the University of Pennsylvania’s Wharton School in Philadelphia. “These are more volatile markets and getting back to normal could take years.”

Phoenix and other southern and western cities such as Atlanta, Houston and Dallas grew because they offered an affordable lifestyle to middle-class Americans, said Edward Glaeser, an economics professor at Harvard University in Cambridge, Massachusetts. That growth has slowed.

Slowing Growth

The Phoenix area’s population is forecast to increase 1.6 percent in 2009 from 2008 and 1.8 percent in 2010, according to a forecast by Scottsdale, Arizona-based real estate and economic consulting firm Elliott D. Pollack & Co. That’s the slowest growth since at least 1990. Employment may fall 6 percent in 2009 and another 1 percent in 2010, according to the firm.

The real estate crisis has brought economic growth to an end. Arizona had the highest unemployment rate since 1983 in July at 9.2 percent, according to the U.S. Bureau of Labor Statistics. The rate fell to 9.1 percent in August. Single- family building permits in metropolitan Phoenix may fall to 5,973 this year, down 81 percent from 2007, according to a consensus forecast of real estate and consulting firms and universities compiled by Arizona State University’s W.P. Carey School of Business.

“The economy in Phoenix is in tatters right now,” said Matthew Anderson, a partner at Foresight Analytics LLC in Oakland, California. “It’s now really hit the skids.”

The decline demonstrates that it may take even longer for states with slower growth to emerge from the recession.

Rising Unemployment

In August, 19 states had higher unemployment rates than Arizona’s, U.S. Bureau of Labor Statistics show.

Worse, more real estate is at risk of defaulting throughout the U.S. Investors in commercial mortgage-backed securities are holding assets with a delinquent unpaid balance of $28.9 billion, up more than five fold since June 2008, according to a report issued by the Congressional Oversight Panel. Under a worst-case scenario, the panel estimates that commercial real estate and construction loan losses through 2010 may total $81.1 billion at 701 banks with assets of $600 million to $80 billion.

“The problems in commercial real estate are just getting started and they will dampen what is already going to be a weak economic recovery,” said Jim Rounds, senior vice president and senior economist at Elliott D. Pollack. “In Arizona, the recession is probably going to last to the middle of the next calendar year.”

Growth Fallout

Wachter, who has been studying housing markets for more than two decades, predicts that Phoenix won’t see a recovery until at least 2012.

The city of Phoenix is suffering the fallout from growth that boosted its population from 983,403 in 1990 to 1.6 million in 2008, according to the Census Bureau. Single-family building permits in Maricopa County, which includes Phoenix, rose more than five-fold from 1975 to the peak earlier this decade.

Delinquencies for loans backed by office, industrial, retail and apartment properties that were bundled into securities in Phoenix increased five-fold buying drugs since March, according to data compiled by Bloomberg.

The Phoenix office vacancy rate probably exceeds 30 percent, including space that’s leased yet vacant because the tenants have pulled out, Rounds said.

More offices are becoming available. Los Angeles-based commercial broker CB Richard Ellis Group Inc. said in a second quarter report 2.2 million square feet will be ready for occupancy this year and in early 2010.

Late Payments Rise

As tenants abandon space, landlords are struggling to meet their obligations. Commercial properties with mortgage payments 60 days late or more rose to 8.5 percent as of August in the Phoenix, up from 1.6 percent in March, data compiled by Bloomberg show.

“The commercial markets are the second shoe to drop,” said Marshall Vest, the director of the Economic and Business Research Center at the University of Arizona’s Eller College of Management in Tucson. Vest has lived in Tucson since 1970 and worked at the business school studying and forecasting the Arizona economy for 30 years.

For the last three decades, Arizona’s population growth has exceeded most of the nation’s. From 1970 to 2007, the state’s population more than tripled to 6.3 million. Its population growth ranked second or third in the U.S. from 1970 through 2008, according to Pollack data.

Onetime Growth Engine

The state was also an engine for job growth. Arizona was fourth in the U.S. in employment growth from 2000 to 2008 and second from 1990 to 2000. Arizona’s gross state product, a measure of overall economic activity, jumped to $249 billion last year from $30.3 billion in 1980.

Residential construction soared from 1980 to 2005, the peak of the new-home market boom in the state. Single-family building permits rose from 22,919 in 1980 to 87,415 in 2005, according to data on Texas A&M University’s Real Estate Center Web site.

The fallout can be seen throughout the Phoenix. Completed and empty office buildings and retail developments dot the desert landscape of the region, the 12th-largest metro region in the U.S. Vacant retail shops are hard to ignore.

‘Going Under’

“It’s kind of going under locally,” said Chris Dellrie, who was working at Axis Sports, a sporting goods and clothing store, one of at least two businesses open in a Gilbert shopping center that’s mostly empty.

The slump forced Opus West Corp., one of the region’s biggest real estate developers, to file for Chapter 11 bankruptcy this year, listing debts of $1.46 billion and $1.28 billion in assets, according to bankruptcy records. Opus West is part of the Opus Group, a real estate developer based in Minneapolis.

“It’s really nothing out of the ordinary,” said Craig Henig, senior managing director at CB Richard Ellis in Phoenix. “They believed like everyone that the market would expand.”

At 24th at Camelback II, an 11-story, 300,000-square-foot office building going up in Phoenix near the Arizona Biltmore Country Club, developer Hines hasn’t preleased any of the space. The building will be finished in the first quarter of 2010, said Kim Jagger, a spokeswoman for the Houston-based real estate company. Jagger said there are at least half a dozen potential tenants.

‘Horrible Economy’

People who’ve moved to Phoenix and adjacent suburbs have found life difficult as the economy has slumped.

Ambre Mauro moved to Gilbert, a suburb of Phoenix, in March after struggling in Oregon.

“The economy was horrible there,” said Mauro, 25, who graduated from Brigham Young University-Hawaii with a degree in exercise sports science. “Eventually I decided to come here.”

Things aren’t much better in Arizona. Mauro now holds two jobs. She’s a personal trainer and front desk clerk at a local gym and a waitress at a Japanese restaurant, where she makes about $10 an hour, including tips.

“I have a four-year degree and I never expected to be a waitress,” Mauro said.

About 25 miles northeast of downtown Phoenix, the Peaks Corporate Park stands as a reminder of just how optimistic developers were about the region’s growth prospects.

Prestigious Neighbors

The office complex was built in one of the most prestigious and wealthy parts of the state, where the median price for a new home was $920,000 in the second quarter.

A Web site for the development boasts that it’s near several resort hotels including the Boulders, a Waldorf Astoria property, and “neighbors such as General Electric, Pacesetter, DHL, Taser, USF Bestways, Toll Brothers, Pulte Homes.” Dale Dowers, a principal with the developer, didn’t return calls or e-mails for comment.

With no tenants, the development’s courtyard is barren but for a sculpture featuring wildlife.