Chuck Ponzi April 1st, 2005

First off, when did everyone in Southern California become a real estate agent, broker, investor, developer, or pundit?

Frankly, I have heard enough get-rich quick schemes to know this one is short-lived, and will be disastrous to the people least able to afford financial disaster. The cloud of stupidity hanging over SoCal threatens to flush the entire LA and San Diego area down the toilet faster than the Rains of 2005.

The most recent rise has been in flipping properties before they are built…. This is how it works.
1. Joe looks for unbuilt communities in the LA Times real estate section in outlying areas where the average commute is approximated in parsecs, not miles
2. Joe lines up with other speculators on opening day to reserve every single house in Phase 1 through infiniti. The entire community is sold on day one, leading the builder to believe there is infinite demand for housing in SoCal, and he already begins plans to build another community 10 times as large.
3. Joe plops down $10K for the promise of a homebuilder to complete a home in Phase 3 (9 months later)
4. 8 months later, Joe gets a call from the builder that the home is nearing completion.
5. Joe calls his R.E. Agent (read: Hack) and decides with his help that the house is now worth $1Million more than Joe agreed with the builder 8 months earlier.
6. Jim, the naive homebuyer (who has seen prices spiraling out of control over the last 8 months due to “restricted supply”) hears about the listing through their agent, and offers to buy the home sight unseen for $1.1Million more than Joe paid, thereby preserving thier societal status and dreams of wealth beyond imagine when they sell in 2 years.
7. Joe pockets the $1.1Million less the $10K he deposited, and transfers title to Jim.
8. Joe moves on to his next victim, and Jim moves on to his $30K per month negative amortization adjustable mortgage on his $5K per month salary.

People, this will not end well… For Jim, the hapless, hardworking man who cannot afford his home, but believes he will make it up when he sells it, his loss was to believe the hype about restricted supply and infinite demand.

The only way to stop the madness is to stop.
Stop buying the overpriced house, just because everyone else is.
Stop buying the H2 that you can’t afford without a home equity line
Stop telling how much equity you have in your house (it will evaporate)
Stop worrying about your quality of life, it will get better here because people hate it here

Good luck to you agents, brokers, investors, developers, and pundits… the crash is coming soon, and I will laugh at your misfortune.

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