Phoenix-area real estate picture grim

QUEEN CREEK, Ariz. -- Drive into the sprawling development of stucco starter homes in this Phoenix suburb by the San Tan Mountains and the first thing you notice are the "For Sale" signs.

The next thing is what many of them say: "Bank-Owned Home."

For the past two decades, the Phoenix metropolitan area boomed, its population growing by more than 50%. But since late 2007, boom has turned to bust. Home prices have tumbled 40% in a year, figures from Arizona State University show, prompting investors to abandon their properties and leaving overextended homeowners to face foreclosure.

It's no surprise that President Obama chose the area to unveil his housing policy today — a $50 billion plan intended to help homeowners stay in their homes. It's also no surprise that residents caught up in the housing bust see little hope for improvement in an area where university data show 45% of all recorded transactions stem from foreclosures.

"We still have some pretty high numbers to come," says Jay Butler, who directs the school's real estate center. "If you're struggling to keep your home and you see all this empty stuff around, then you lose incentive to stay."

Census numbers show that a record one in nine U.S. housing units are vacant, including about 3% of owned homes. The Mortgage Bankers Association says more than 2 million homeowners faced foreclosure last year. The median sales price dropped 12%, according to the National Association of Realtors — far more in parts of Arizona, California, Florida and Michigan.

Obama has said he wants to make mortgages more affordable by providing incentives to lenders to restructure loans. During the presidential campaign, he called for creation of a $10 billion foreclosure prevention fund.

The president will speak in Mesa, a city of 450,000 east of Phoenix. Like most of the metropolitan area, it has seen a spike in foreclosures — 1,500 in one ZIP code alone, Mayor Scott Smith says. Median prices have plummeted from $208,000 a year ago to less than $138,000. What's left behind is often blight and vandalism. "Abandoned buildings are magnets for crime," he says.

Many of those losing their homes aren't speculators or people who took out subprime mortgages, Smith says. They're victims of the recession, often losing their jobs. Some are forced to move in with family members.

Jinae Nielsen, 24, knows about that. Last year, she was lucky. With her husband and two toddlers, she moved into a foreclosed four-bedroom home for $118,000. The family driven out had bought it for $259,000.

Prices are still dipping: A larger home nearby sold for $111,000. "In order to get back what we want, we're going to have to be here for a while," she says.

The extra bedrooms may come in handy: Nielsen's father, a pilot, was laid off and faces imminent foreclosure in Mesa. Obama, she says, "needs to get more jobs out there for us."

It's not just starter homes that are affected. Realty signs dot the more rarefied country lanes of Orchard Ranch, a development of 1-acre homes dotted with orange trees, private swimming pools and equestrian trails.

Bill and Chris Pollock's neighbor has been trying to sell his home there for a year. The asking price started at $799,000. They say he'd take $525,000 today.

The Pollocks, both 65, built their dream house for about $360,000 five years ago. Its value more than doubled but has since dipped below $600,000. "We're sitting tight," says Chris, a seventh-grade language arts teacher.

That's more than can be said for their son Doug, a single father who couldn't keep up with his mortgage payments and is now renting. "He just got in way over his head," says Bill, a nurse.

A bit farther north in Mesa, Kenny Mayer, 32, is trying to sell his three-bedroom house because his wife is pregnant with their third child. He's competing with three homes around the corner that are foreclosures.

The Mayers bought their home for $119,000 in 2003 and watched its value double. They want out while they're still ahead. Asking price: $140,000.

Obama's plan should consider people such as themselves, Mayer says, who have always lived within their means — not those who spent what they didn't have. "I don't want to see a plan to help them out," he says.

Amelia Lloyd, 30, lives with her husband and four children in a development where the builder foreclosed during construction. Another builder is finishing the job, but at reduced prices. As a result, their home is worth about $135,000 — $40,000 less than they paid in June 2007.

As for Obama, she says, "I don't think he can do a whole lot."