Grady Gammage, a real estate attorney who has promoted, studied and chronicled Arizona growth for years, says the period between 1970 and the late 1990s followed the "normal Arizona growth cycle." In other words, 1.8 million new people gobbled up more than 500 square miles of desert and farmland, and the number of miles driven collectively by Phoenicians rose from 12 million per day to 70 million -- and that was "normal." But between 2000 and 2006, the growth machine went really nuts, the laws of supply and demand were thrown out of whack, and folks like the Guerros got caught up in the grinding gears.

Generally, people move to a community for a specific reason -- jobs, climate, scenery -- creating a demand for housing. If the demand exceeds supply, then prices go up, and someone builds new houses to meet the need. Something else seemed to be happening on the fringes of Phoenix. Instead of being lured by jobs or amenities, people came in large part because houses were relatively cheap. "Phoenix and Las Vegas became the ultimate suburbs of Southern California," says Christopher B. Leinberger, a real estate developer and visiting fellow at the Brookings Institution, where he studies urban planning. "They became the place for folks in California who could no longer afford the late 20th century American dream."

Just because a place is relatively cheap doesn't make housing affordable, however. That brings us back to the Guerros. They wanted a nicer house than they could afford, so their lender offered a solution: An adjustable-rate mortgage. Their monthly payments were $2,700. Of course, the bank would jack up their rates after two years, but it didn't matter. With home values climbing steadily, they could refinance before the rate reset, pull out enough cash to buy a jetski or a new car, and keep their mortgage payments in check. In other words, the banks were creating affordable housing where it didn't really exist; with easy and tricky loans, they were creating purchasing power, or demand. Tens of thousands of such loans were issued in Arizona, and the major homebuilders even got into the game, offering financing in a manner more often associated with car manufacturers.

This artificially inflated demand did the trick. In just five years, Surprise gained another 50,000 people, and added more than 7,000 homes in 2005 alone. Maricopa County -- which contains the bulk of the greater Phoenix metro area -- grew faster than anywhere else in the country, and the Phoenix area issued more than 62,000 residential building permits. The economy responded: In 2006, Arizona's gross domestic product grew by 6.7 percent, compared to 3.1 percent for the nation as a whole. The construction industry provided 9 percent of all non-farm jobs in Arizona, making it by far the biggest employer in the state. Those jobs drew more people, who took out more loans to buy more houses, creating more demand … you get the picture.

Housing prices soared -- nearly doubling, on average, over two years -- to create almost instant wealth. Speculation was so rampant that it threw population estimates for a loop. Last year, with the bust in full swing, state and local officials discovered that their method of counting people -- by starting with 2000 census numbers and then estimating population using the number of houses built and sold -- didn't work. They had assumed an occupancy rate of 98 to 99 percent, when in fact at least one of every 10 new homes was sitting empty, even before the bust. A lot of people were making a lot of money. A lot of people would lose money, too.

By the time the Guerros' mortgage reset, this frenzied feedback loop was spiraling in on itself. Gas prices had soared, people couldn't pay their loans, and the housing bubble couldn't inflate itself anymore. Even as their home's value plummeted, the Guerros' loan payment increased by $1,100 a month. Bob tried to talk the lender into lowering the payments, but the bank wouldn't budge. He then paid a "mitigation company" some $3,000 to renegotiate the loan. "But everything they were doing I had already done," he says. "Basically, they did nothing for us except take our money."

With their funds dwindling, the Guerros had to face the prospect of losing their house, along with the $80,000 they had spent on a pool and other improvements. "It was scary," says Rayo. "We had realtors coming to our door, trying to get us to do a short sale, telling us, ‘They're going to change your locks. Your furniture will be outside.' " The bank gave them until Sept. 22, and Bob made sure that they were out on time. "It was stressful. Did a lot of crying," says Rayo. "And praying," says Bob.

They weren't alone. Since 2005, Arizona, Nevada, California and Florida have led the nation in foreclosures. During 2008, the foreclosure rate in Arizona was one in every 163 homes, nearly three times the national average, with much higher rates in parts of the greater Phoenix area. The Arizona growth machine ground to a sickening halt.