Gaylen Wilder looks at the home listings in her neighborhood newsletter, and she can’t believe the prices. A $400,000 home here. A $350,000 home there.

“It’s a little scary,” says Wilder, who grew up in the Preston Hollow area, near Preston and Forest, and moved back a couple of years ago, buying her parents’ house.

“Where do there people get all of this money?”

That’s a question many in Preston Hollow are asking. Home prices have soared to record levels during the past couple of years, as new residents have flocked to the area not to buy 2,000-square-foot starter homes, but bigger and more expensive houses, and especially teardowns. It’s a trend that is as true for Preston Hollow proper as it is for the larger area from Northwest Highway to Forest Lane and Midway to Central Expressway.

And it’s a trend that has transformed Preston Hollow, from top to bottom, into one of the wealthiest neighborhoods in the United States, with income levels that rank it among the top two or three percent. Says Ebby Halliday’s Kay Weeks, who has sold real estate in the area for 14 years: “The complexion of the neighborhood has changed dramatically.”

This dramatic change raises all sorts of questions about the future of Preston Hollow and its neighborhoods, about its character and appeal, and even its reason for being. Can a neighborhood with $300,000 starter homes be the same kind of place it was when people needed a lot less money to live here?

Says Paul Geisel, an urban affairs specialist who teaches at the University of Texas-Arlington: “What you have is rich people moving into these neighborhoods because they like the diversity, and pretty soon, the neighborhoods have become so expensive that only rich people can afford them, and then they aren’t very diverse anymore.”

By the numbers / Much of the Preston Hollow area has always been solidly middle-class, with the neighborhoods to the west and to the north – Preston Hollow Estate, Preston and Royal, Preston and Forest – generally more affordable than Preston Hollow proper. But those traditional patterns have changed markedly over the last 10 years, as the area has become one of the wealthiest in the United States.

Just consider these figures:

• Figures based on the U.S. census data showed that in 1990, in the 75225 ZIP code, three out of 10 households had incomes of more than $100,000. In the 2000 census, that proportion was four out of 10. In 75230, the numbers were one out of five and one out of four. By comparison, the national proportion is about one out of eight.
• In 1990, according to the census data, the median household income in 75225 was almost $60,000. In 2000, it was $85,000 – a 41 percent increase. In 75230, the numbers were $44,000 and $55,000, a 25 percent increase. The national median household income is $41,000.
• The number of households earning less than $15,000 a year dropped by more than half in 75225 and by one-third in 75230, to 4.4 and 9.2 percent.
• A 2,500-square-foot starter home, with three bedrooms and two baths, cost as little as $110,000 north of Royal Lane in the early 1990s. Today, that same house costs between $250,000 and $300,000, assuming it hasn’t been bought for a teardown.

Virginia Cook’s Lasandra Miller, who has lived in Preston Hollow since the mid-1960s, notes that big price jumps aren’t unusual. She points to her first house in the neighborhood, which her family paid $30,000 for, and which a subsequent owner sold for some $200,000. Says Miller: “It’s kind of like the stock market. When these things go up, they go up.”

“The market has just exploded,” agrees Peter Gerard, president of the Melshire Estates Homeowners Association near Preston and Forest, who says now there are nearly seven-figure homes in a neighborhood that has usually been one of the most affordable in the Preston Hollow area.

There are many reasons for this explosion, experts say. The slam-bang economy in the ‘90s certainly helped, but even as the economy has slowed over the past couple of years, home prices have remained steady. Rather, says John McIlwain, a senior fellow for housing at the Urban Land Institute in Washington, it may be as simple as supply and demand. After three decades of losing residents, more than a dozen U.S. cities, including Dallas, got some of them back in the 2000 census. But since inner city areas in places such as Dallas had already been built out, there was little or no room to add housing. Hence, higher prices.

Further fueling the growth has been the up tick in teardowns. By making the land more expensive than the house that’s on it, Weeks says, the economics of teardowns compel builders to put up even more expensive homes to guarantee a profit. That’s how property valued at $250,000 winds up with an $800,000 house on it.

Everyone has a favorite story about the new, high prices, be it the house down the street that went on the market after its owner died and sold for three times what everyone else paid for theirs, or the teardowns that keep going up on what little vacant land is available, and that somehow sell in the mid-six figures when everyone believes they’re really worth a fraction of that.

The statistics bear those impressions out. Homes in Preston Hollow proper are selling for $200 a square foot, comparable to prices in the Park Cities, and listings near University Park are well into seven figures. Prices elsewhere go for more – often for much more – than $100 a square foot. And few expect prices to soften any time soon, unless something drastic happens to the U.S. economy to reduce demand.

The people buying these homes, McIlwain says, generally come from one of two groups. Either they’re Baby Boomers whose children have left home, or they are their children, the leading edge of the so-called Echo Boomers. Both have been influential in Preston Hollow, Realtors say, since they’re generally well educated professionals with two upper middle-class incomes who don’t mind spending it on their new homes.

“We already knew what we were getting into price wise,” says empty nester Kay Elliott, who moved to Northaven and Preston from Garland a year ago with husband Bob. “But we knew that’s what it was going to cost to get what we want, so we weren’t shocked.”

Why demand has increased has also been well documented. Crime, the scourge of the early ‘90s, hasn’t returned. Meanwhile, the new residents are tired of long commutes, bored with suburban sameness, and attracted to the area’s large lots, plentiful trees and quiet streets. Many have left the Park Cities not only to be closer to their children’s private schools, but also to get more house for their money. Weeks says that buyers – and especially younger buyers – are more particular than in years past. They want more expensive amenities, such as granite countertops and remodeled bathrooms, or they aren’t interested.

“If you look at it in terms of supply and demand, you can make an argument that parts of Preston Hollow are still under-priced,” says RE/MAX’s Gary Pilant.

“Demand is going to increase for property south of LBJ, and this is the prime property south of LBJ. Parts of Preston Hollow are exactly where the Park Cities were 10 years ago, just waiting for prices to take off.”

Understanding the changes / That’s a sentiment that sends shivers through many long-time residents.

“I really have mixed emotions about it,” says Murphy Johnston, chairman of the homebuilders committee for the Preston Hollow East Homeowners Association, who grew up in Preston Hollow.

“Yes, it’s great to see home values increase, but not at a cost of having Plano McMansions in the area. That’s when you lose the advantage we have, like unique homes and large lots and the trees.”

Teardowns have been the most obvious manifestations of that attitude, but Geisel says it can go much deeper. There is no guarantee that someone who buys a house and remodels it is going to be any more committed to the neighborhood than someone who does a teardown. Instead, are new residents attracted by the neighborhood or the marketing? Do they want to live in an area because they like it, or because they’re supposed to like it?

Geisel points to the Park Cities as the ultimate example of what happens when marketing drives value. Twenty and 30 years ago, most residents saw it as a community, as a place to raise a family that wasn’t all that different from Preston Hollow. Today, the perception is far different, that of a suburb that exists for its schools, its high property values, and its elitist appeal. But what else can be expected of a place with $500,000 starter homes?

“Clearly, there are social and cultural implications of these kinds of changes over the long term,” Geisel says. “They can affect the schools, the churches, all sorts of neighborhood institutions. If you have people moving in who aren’t interested in the neighborhood, what happens to the local schools and the local churches? There is no guarantee that anything will happen, but there is always the possibility, and I think that’s what worries so many people.”