Kerry Fehr-Snyder
The Arizona Republic
Feb. 27, 2008 09:30 AM

Marshall and Wendy Kauffman were drowning in debt six years ago.

After paying off about $15,000 in credit card bills, they recently got the keys to their first home: A 1,150-square-foot three-bedroom, two-bath house in a nice Gilbert neighborhood. They paid $185,000.

The Kauffmans, who are both 29 and have three children, are among homebuyers fighting over a growing inventory of homes in the Valley's super hot sub-$200,000 market. The sub-prime debacle, foreclosures and short sales are continuing to drive Valley real estate prices down, making more homes than ever affordable for first-time homebuyers and investors. But those who want to get the deals face:

• Competition from investors.

• Bidding wars on "short sale" homes.

• Waiting games for lenders to respond to "short sale" offers.

The Kauffmans found their dream home relatively quickly by limiting how far out they were willing to look. They also disregarded short-sale and foreclosure homes, said Audrey Hickman, the Kaufman's real estate agent at WestUSA Realty.

Wendy Kauffman described their house hunt as "a wonderful experience."

"But the key was having people on your side, from Audrey to our mortgage broker," she said.

The other key was not having to sell another home first. The couple has been renting a 1,460-square-foot, three-bedroom, two-bath home in Ahwatukee. Homes that sold for under $200,000 grew to 34 percent of the market in January, up from 16 percent of the market in January 2007, according to Jay Butler, director of Realty Studies at the Morrison School of Management and Agribusiness at Arizona State University's Polytechnic campus.

Butler's data doesn't break down where the less-expensive homes are selling or how many of the buyers are investors.

Several real estate agents said many of the buyers in this market are investors.

Also, Dave Green of Century 21 Arizona Foothills said many of the homes listed for $200,000 or less tend to be in far-flung areas of the Valley, such as Queen Creek or the City of Maricopa. Those closer to metro Phoenix often rise above the $200,000 mark.

Bradley Crutchfield, an assistant technician at the Gila River Indian Casino and a part-time ASU student, said he wound up paying $243,900 for his first house, a foreclosure near Clemente Ranch in Chandler.

"It was in the (price) range of what I was looking for but it was my top end, and I was only willing to pay that if I could be closer," Crutchfield, 23, said. "I've been looking for about two years now when the market was really high, and I had the urge to buy. Then the market went down, and I seriously wanted to buy."

Crutchfield and his real estate agent, Sonia Carver of Keller Williams Realty East Valley, said they also found themselves competing with investors.

"The sub-$200,000 market is super hot," Carver said.

Shawn and Charlene McNeely, who live in Mesa, jumped into the low-end market to generate retirement income. They have bought three homes with the help of real estate agent Marie Nowicki of Re/Max Elite in the past six months ranging in price from $200,000 to $220,000. Two of the homes are in Gilbert and one is in Chandler.

One of the Gilbert homes was owned by a 65-year-old woman whose 95-year-old mother has Alzheimer's disease and lives with her. The women were about to lose their home because they couldn't keep up with their mortgage payments, which ballooned to $3,000 a month on an adjustable-rate loan.

The McNeelys said they now rent the home back to the women for $1,200 a month.

"She was very happy because for months, she was in fear of losing her home and being displaced," Shawn McNeely said. "Unfortunately, somebody's misfortune becomes somebody else's opportunity."