By Julie Bennett

Talk to residents or vacation homeowners in Sedona, Ariz., and they'll tell you when they first caught "Red Rock Fever" -- a desire to own a piece of this high desert town of 11,000 people that's surrounded by ponderosa pine forests and red rock formations.

Rick Wesselhoff, who had worked in Switzerland for seven years for an adventure sports company, says he and his wife Jennifer drove into Sedona one evening six years ago. "The sun was going down. The rocks lit up, and we said, ‘This is the place.'" Today he is a realtor with Coldwell Banker First Affiliate there.

Sallie and Donald Davis of Milwaukee were invited to a weekend at the Seven Canyons Golf Course when he was CEO of Rockwell Automation in Milwaukee. "We fell in love with the Seven Canyons Development," says Ms. Davis, "and decided on the spot to build a house there."

Dr.Nancy Cutler of West Bloomfield, Mich., says she and her attorney husband Michael "looked at other vacation home places with an open mind, but we kept comparing them to Sedona." The couple purchased a small house they'll eventually replace on a lot with a view of "beautiful red mountains," Dr. Cutler says. "Prices keep going up and we knew we'd kick ourselves if we let them get to a level where they were out of our price range."

Red Rock Fever can be costly. Sedona was a sleepy town halfway between Phoenix and the Grand Canyon until 2003, when USA Weekend's Annual Travel Report ranked it "The Most Beautiful Place in America." Gerrie Jakobs, an associate broker with Larry + Gerrie at RE/MAX Sedona, says, "The town is surrounded by the Coconino National Forest and growth is limited. We suddenly had so many buyers clamoring for properties here that prices went up exponentially." Land prices rose 66% from 2004 to 2005, she says, and home prices were up 26% in the same period. "Where else can you get that much back on an investment?" she asks.

Retired Delta Airlines pilot Lew Hoyt plans to fund his retirement with such investments. Mr. Hoyt and his wife built a house in Sedona three years ago, but they also purchased a membership in the Seven Canyons Golf Club, plus a lot and a fractional ownership villa in the surrounding development. "All three have more than doubled in value in about two years," he says.

Mr. Hoyt's golf club membership, for example, cost about half of the current price of $175,000, "and the developer will buy it back from you for whatever you paid," Mr. Hoyt says. As the price appreciates, you share in that revenue, too.

Seven Canyons sales executive Rob LaRue says home sites in the 200-acre development started selling for $1 million about two years ago; now they're going for over $2 million. Fractional (onetenth) ownership of one of the development's 84 villas costs $415,000 and 220 are already sold, although several of the three-bedroom villas are still under construction. All owners will hold deeds to their units and will be able to use them for four weeks each year. Before arriving, Mr. LaRue says, "they can fax us their grocery list, so they won't have to worry about driving 10 minutes into downtown

Sedona for food items." Or, he says, they can hire the services of a Seven Canyons private chef. Sedona wasn't always so tony. In the 1980s, the town was the center of the "new age" spiritualism movement and neighborhoods of manufactured homes still exist there. Gary Strohm, a broker with Coldwell Banker First Affiliate, says the average home price was about $200,000 when he first moved to the area in 1993. Builders began putting up spectacular houses, with granite counter tops and architecturally dramatic finishes, about six years ago, he says. Today, the median price of the 236 houses on the market is $765,000 and last year 75 houses sold for $1 million or more.

"The mystique of a Sedona address keeps the numbers high," says Mr. Strohm, who lives in nearby Cornville (population 3,500), where the median home price is still around $200,000 and lots are so big that most of his neighbors have horses. You can also find bargains in Cottonwood (population 10,500), where 84 houses are on the market with a median price of $265,000 and a top price of $600,000.

But Sedona offers more than mystique. According to Char Beltran, CEO of the Sedona Chamber of Commerce, Sedona has 40 art galleries, several world-class resorts, and a variety of fine restaurants. The town also has its own film office and celebrities like Al Pacino, Rosie O'Donnell and Nicholas Cage are frequent visitors. Every autumn, people from all over the country attend the Sedona Jazz on the Rocks Festival. The area has two other golf courses besides the pricey Seven Canyons and miles of hiking and horseback riding trails.

The average age of residents is about 50 and the area attracts mostly baby boomers like Dr. and Mr. Cutler, who want vacation homes now that can become retirement retreats later. Mr. Davis retired from Rockwell Automation a year ago and when their house in Seven Canyons is finished, they'll spend about half of every year there, Mrs. Davis says. Ron Maassen and his wife Kay moved to Sedona permanently after he retired from a civil engineering job in Milwaukee in 2003. Mr. Maassen is the president of the board of the Sedona Historical Society and says it's easy to make friends and get involved in community activities.

If you catch Red Rock Fever and are interested in buying property in Sedona, Mr. Maassen suggests you spend at least a month there first, checking out all the neighborhoods. "We wanted a real neighborhood where people lived full time," he says, "so we toured every part of town, looking for people walking dogs and kids on the street." You may prefer a gated community where you can feel safe leaving your vacation home empty for weeks at a time.

Spend time on the Internet looking at properties, advises Mr. Wesselhoff. "A lot of prices have been reduced in the past few months and we're slowly making a transition into a buyer's market. You may be able to negotiate a good deal."

Living in The Most Beautiful Place in America does have its drawbacks. Sedona is a small town, with small-town amenities. "If you need the symphony or opera, you have to drive to Phoenix," Mr. Maassen says. The nearest upscale clothing stores are also a two-hour drive away, in Phoenix or Scottsdale.

Those stunning Red Rocks draw over three million tourists a year and commercial businesses are arriving to serve them. "I love the appreciation," says Mr. Hoyt, "but I regret how many people are coming here."

The soaring real estate prices are tipping the population toward older, affluent people. San Francisco residents Adrian Jones and his wife, Angelique Loscar, both in their early thirties, liked the area so much they were married there and bought a threebedroom vacation home in 2004. "We love the hiking and mountain biking," Mr. Jones says, "but we really haven't met anyone close to our age."

And, of course, there's the constant talk about real estate prices. "Everyone has a story about the house they should have bought before the prices went through the roof," says Ms. Beltran. "When I moved here five years ago, for instance, I could have purchased a great house for $300,000. Now it's selling for $800,000."