(Agencies)
Updated: 2007-10-07 10:26

The American Dream is a myth overdue for revision.

"There's been a huge shift in the way people view their houses," says John Karevoll, who tracks real estate for DataQuick Information Systems." Your house now can basically be used as an ATM."

Twenty years ago, families celebrated when they got a mortgage and again when they retired the loan. A home meant security. The financial commitment promoted both pride and neighborhood roots.

But Americans have become much more mobile, and looser lending has made it easier to buy a home and to borrow against its value.

Now a home is more, or less, than a place to live. It is an investment, a way to make money and finance a lifestyle, says Robert Manning, an expert in consumer credit and debt at the Rochester Institute of Technology.

The housing and lending industries encouraged that transformation, promoting not just subprime loans but mortgages requiring little or no documentation of income, no money down, and interest-only payments.

When easy borrowing combined with a run-up in prices, speculators joined the fray. In Arizona and other Sun Belt states where foreclosures are rising fast, homes not occupied by their owners account for an outsized portion of foreclosures, according to the Mortgage Bankers Association.

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."

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 US$1,000 to US$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."

In the Villages, already half completed, remaining lots looked too good to pass up. One Southern California investor, Alan Jullien, bought three homes. A flight attendant, Angela Nazario, bought a two-story house even though she lived by herself and was frequently on the road. A local real estate agent, Sean Bacon, bought two.

Homeowners who bought earlier were feeling good. The market spike turned the Gustafsons' US$235,000 home into one worth US$380,000.

Across the Valley, homeowners watching their home values shoot up, borrowed against those gains.

"Talking to a lot of co-workers, everyone was doing the same thing — taking out lines of credit, milking it for all it's worth," says Matthew Berends, a homeowner in Surprise, another Phoenix suburb where prices soared. His home is now in foreclosure. "In one year for a house to go up US$80,000, it's like too easy."

But some relatively modest purchases would prove to be risky gambles.

Greg Giniel and his wife moved into a home on East Sanoque Drive bought by a friend, with Giniel as a silent partner. What Giniel hadn't counted on was that the friend had also bought three other homes around the Valley, all financed with adjustable rate loans that were bound to rise.

One street over, the Kesslers paid US$279,000 for a house in the fall of 2005.

With US$25,000 down and an interest, only loan, it seemed like a wiser deal than their old rental.

There was a problem, though, obvious only in hindsight. A market that had skyrocketed was about to take a plunge.

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