First Pop

It looks like the SoCal real estate bubble is going to experience its first big pop in a novel location, Mexico.

Over the last couple of years, developers, having optioned land on the Pacific coast, between Tijuana and Ensenada, have been taking 20-25% cash deposits on condos to be built there. The first phases of these developments are now nearing completion. Most of these condos sold for between $300,000-$500,000. In order to take procession, the buyers must come up with the balance in cash or secure a Mexican mortgage at 11-13% interest.

It turns out, most of the people that bought these Baja bungalows, did so for purposes of speculation. They planned on picking up a quick 20-30% on the purchase price, doubling their money, by flipping the property before it was even completed. The problem is, they haven't gone up in value. Nobody knows what they are worth, because they aren't currently selling at all. To compound the problem, many of the buyers refinanced their US homes to come up with the down payment and now face unsustainable levels of debt even without the burden of a Mexican Beach condo.

They have been marketing these things as the answer to the baby boomer's retirement dreams. I guess they will have to get new answers or new dreams.