Bank of America to Pay Countrywide's Mozillo $10 million, Sambol $9 million

The AP is reporting that next week Countrywide CEO Angelo Mozilo will receive a payout from Bank of America of over $10 million in stock, while Countrywide President David Sambol will receive $9 million in stock, all part of the $4 billion takeover of Countrywide by BofA.

Mozilo

Sambol

Sambol will be paid $28 million to stay on at BofA and run the consumer lending organization.

Politicians and homedebtor bailout champions like Senator Charles Shumer of NY are publicly expressing outrage at such payouts, but it does seem quite real, and it all comes too damn late to matter. Where was the congressional disgust 1 year ago, 2 years ago, 5 years ago? Nobody pretended to know or care then.

Millions of Americans will either lose their homes, go bankrupt, lose their jobs and/or be otherwise negatively affected by the greatest housing market crash ever recorded in U.S. and world history, yet the business leaders who concocted, presided over, pumped and encouraged the biggest credit Ponzi scheme in history will be rewarded with millions of dollars for their efforts.

Where is the FBI? Where is the SEC? Where is the U.S. Attorney General?

The plot appears to be officially lost.

Can this nation of supposedly united, federated and free states be possibly any more fucked up?

God help us all.

What? Homedebtors Mad As Hell? Hmm, wonder why.

The Wall Street Journal reports on the "Cash for Keys" concept underway in Las Vegas, NV to prevent desperate, foreclosed and incredibly pissed off homedebtors from pouring cement down their toilets and in other ways trashing their lost homes.


Step 1: Get a wheel barrow.
Step 2: Buy a bag of Ready Mix cement (Home Depot probably has it on sale right now).
Step 3: Pour in some water and mix together well in the wheel barrow with a garden hoe.
Step 4: Pour away before it hardens.

America, Wake the F&*# Up!

Put down the cable TV remote.

Stop watching American Idol, Comedy Central and Dateline: To Catch A Predator just long enough to read what the Secretary of the Treasury Henry Paulsen, minion of the Bush Administration, is proposing! Click Here.

"I believe that banking institutions are more dangerous than standing armies... If the american people ever allow private banks to control the issue of currency... the banks and corporations that will grow up around them will deprive the people of there property until their children wake up homeless on the continent their father conquered"

- Thomas Jefferson, President and Ambassador, United States of America, b.1743-d.1826

This pig created by Paulsen should never fly. But given past American political complacency, it just might.

Mullin It Over in Lake Forest

It's spring time 2006 and I can really see myself buying into the market hype fueled by the classic realtor sales pitches of the era:

"Get in now while you still can!"

"Oh, you can always refinance in the future!"

"Prices in OC will never be this low again!"

"Rates have never been lower. It's a great time to buy!"

So I go ahead and by a 4 bedroom, 3 bath single family in lovely Lake Forest for $670,000, nevermind that the previous owner paid only $230,000 for it back in 1999. This is OC my friends. It doesn't get any better than this. Residential real estate never goes down, these prices are justified and this real estate expert guy named Gary was quoted in the newspaper, promising 15% annual appreciation! No brainer dude! Look at my home price! What more proof do you need?

2 years later I have to sell. Nevermind why. I just have to sell, alright?!
The assessors says the house is worth $684,000.
But I paid $670,000.

I mean I gotta sell this thing. And screw convention and the comps! I'm going for the jugular. No more Mullin it over.

I'm going to flog this baby on the market for $399,900!

Am I Ok with losing $270,000? Apparently so.

What's wrong with residential real estate in Orange County these days?

Plenty.

Lansner: California Home Prices Down 20%

John Lansner delivers more glorious California housing market news.

If it was ok for California realtors to cheerlead the entire real estate market to its euphoric price highs, is it now OK to stare with gaping mouth amazement at the collossal and historic housing crash now underway?

Yeah go ahead, it's ok. As long as you don't block traffic.

2 Bed, 2 Bath Aliso Viejo Condo Awaits You. Just $430,000!

Aliso Viejo is a lovely Orange County community positioned south of Lake Forest and north of Mission Viejo, California.

16 Alicante
1,496 square feet in size ($287/sq foot)
2 bedrooms
2 bath
2 car garage
Price: $430,000
Last Buy Price: April 1993, $125,000

Assuming you can scrounge up $86,000 for the 20% down payment, you can finance the remaining $344,000 with a fixed rate 30 year mortgage. Monthly mortgage payment at a 6.13% mortgage rate from the local bank and presto: A monthly mortage payment of just $2,091.29. That was easy!

But wait a second. What do we see just down the road nearby?
Another 2 bedroom, 2 bath condo, slightly smaller in size, for $390,000!
A $40,000 difference!

87 Pamplona
1,213 square feet in size ($322.00/sq foot - WTF?)
2 bedrooms
2 bath
2 car garage
Price: $390,000 as of Feb 18 (holy crap!)
Original Buy Price: November 2006, $421,172 (holy crap again!)
Days on Market: 137 days (yikes!)

And dammit if both condos don't have brand new gas stoves!

Aarrrrghhh! Runaway!

Come on people! Let's get with the program, shall we!
The temporarily increased loan limits are starting to make no sense at all if people keep dropping their pants on price!

OC Realtors Said It Would Never Happen. Yet It's Happening Right Now.

L.A. Times is reporting that Orange County, San Diego County and LA County collectively showing a 17% price decline between January 2007 and January 2008. Only Las Vegas and Miami are worse.

The C.A.R. reported an increase in the rate of home sales in February by 10% over the previous month,but this still constitutes a 29% decline from February 2007 sales.

CNN: Irvine is a Subprime "Ghost Town"

CNN finally pulls its head out long enough to notice the obvious. "Hey, something must have happened over there in ahh...Irvane...Irving...Irvine, CA or something. Let's go find out what it was and then report on it."

"Honestly, some people are still sitting here with their jaws dropping, saying 'How did it happen?' It was just so fast," said Jacquie Ellis, CEO of the Irvine Chamber of Commerce. "Typically when you have a downturn, it's a slow decline.
That's not what happened here."

Got food?

Housing values crashing around the state? Affirmative, Captain.

Home foreclosures in California increasing? Holy mother of God, yes! Do you even have to ask?

Increased loss of jobs? Yes

Consumer confidence falling? Yes

Cost of oil rising? Yes, and damn you hybrid drivers all to hell!

Cost of grain for food rising? Yes. And yes again.

And what about food!? This might be considered somewhat off-topic in terms of the housing market crash and smoldering ruins all around us. But it is important. And why? Because of how it fits into a family's monthly household budget. Housing expenditures make up the lion's share of any household budget, whether you're renting or in debt with a mortgage. For a family with 2 children in Lake Forest, California, households may be paying anywhere from $1500 to $4500 per month to put a roof over their heads from the most basic to the more elaborate. With the cost of gasoline and the cost of food rising, this will place added strain on household budgets in the coming months and perhaps years. A $400.00 grocery bill that now becomes a $500 to $550 monthly grocery bill can strain already tightening family budgets.

Given the ongoing national and state budget deficit crises, the likelihood that both federal and state income taxes will be raised over the next 4 years is quite high. The current rate of government borrowing can no longer sustain itself as the cost of money steadily increases.
Higher income taxes too will subtract less from the top line of household budgets.

In the housing market, something has got to give here. Home price corrections, such as the one underway in Orange County, California, typically take years, not months, to play out completely. And real estate is local, so some areas will correct faster than others.

Even if customer confidence were to soar overnight for some explicable reason, the fundamental problem remains the same.

What is the take home pay of median (the majority) of families in Orange County, California? And after monthly budgeted expenditures for groceries, gasoline, clothing, insurance for vehicles, maintenance expenditures and savings, is there enough money left over to purchase a house and meet the monthly mortgage payment obligation? Is there enough money left over to pay the rent? And finally, what is the delta between what I would pay to rent a house versus pay to "own" a house?

The answer to these questions right now is not encouraging for the majority of Orange County residents. And this is why the brutal housing market correction we are witnessing has still a long way to go in Orange County.

1 out of 5 bought a car or went on vacation

More Americans are now walking away from their legal obligation to payback money they borrowed from financial institutions to buy their homes. Many homedebtors want, and quite frankly are expecting, a full bailout from Uncle Sam or Tio Samuel to get them out of this financial quagmire.

But for thousands who desperate need help, it will never come:

"One-third of people who are delinquent should be in foreclosure. It's the best alternative," he says. "They don't have the money. They shouldn't have (gotten the loan) to begin with."

Millions of American homedebtors completely mismanaged their debts. They simply aren't earning enough money on a monthly basis to afford the homes they now reside in. Thousands have decided to give up on making payments to a home that is now worth less and less money each day they stay. They're handing over the keys, and flipping the bird to their mortgage lender.

And not all of these home losers had shitty credit ratings. Some had great credit ratings and pulled down the average annual earnings in Orange County, California, for example: $75,000 per anum. Unfortunately, families earning such "chickenfeed", still had no business purchasing homes 7 or even 10 times their annual gross earnings.

Many homedebtors remain in complete and utter shock, that a home, the highest value purchase they've ever made in their lives, could actually decline so dramatically in value in such a short time:

"As home prices fall from coast to coast, 8.8 million homeowners will have mortgage balances equal to or greater than the value of their property by the end of the month, Moody's Economy.com. predicts.

That could come as a shock to consumers who thought property values would always rise, and it helps explain the attitudes lenders are seeing among their troubled customers, Goodman says.

"If you buy a car and it depreciates," Goodman says, "you don't expect the automobile dealer to write off your loan. There's a sense of entitlement (among homeowners) that is just unbelievable."

Goodman, whose firm specializes in home equity credit lines, says the
main reasons people took out the loans were for home improvement, debt
consolidation and medical expenses. But he estimates that about 20% used the
cash to go on vacation or buy a new car."

And yet some felt it prudent to buy second and third cars, motorycles and to blow the dough on vacations.

Finally. But will justice ever be served?

Finally, the FBI has begun an investigation into the dealings of Countrywide Financial Corporation, one of America's largest mortgage lenders according to the Associated Press. The investigation centers around whether Countrywide business leaders may have misrepresented the company's financial position and the quality of its mortgage loans.

Look. Here's a tip. When you're CEO of a company, pulling down about $2 million in salary a year, and then you start dumping millions of dollars of shares of that same company's stock over a short period of time, followed by the company declaring massive losses for issuing the shoddiest of quality mortgage loans, then don't be all that surprised when the SEC and perhaps the Feds show up to ask you a few questions.

In the case of Countrywide, it's about damn time.

And then OC schools started to deteriorate

Call me crazy, but our illustrious Governator, Herr Arnold Schwarzeneggar, will be hard pressed to improve California's already abyssmal state elementary education ranking from 46th in the nation by laying off more teachers around the state. But that's exactly what must take place. And Orange County California is not immune as Fermin Leal, Eric Carpenter and Scott Martindale of the Orange County Register report today. The California State Budget is broken. Now elected officials wish to break state education to put the budget back in the black.

As many as 1,590 teachers in Orange County might get the axe.

Classroom sizes will now increase, student-to-teacher ratios will be higher than ever before, and "non-essential" programs like art and physical education may even be cut. Some schools are even trying to axed the school nurse.

What does the Orange County Superintendent of Education, Mr. William Habermehl, have to say about these new budgeting measures?:

"These could be the most devastating cuts our schools have ever seen," "I don't know how some of our school districts will be able to survive this and provide the same quality of education."

Districts in facing the most layoffs and cuts:

Santa Ana Unified

Anaheim City

Cypress

Saddleback Valley Unified

Saddleback Valley Unified?

Why that's Lake Forest, California's main school district!

What effect will these developments have on the housing market in Lake Forest, CA? Look, I don't know how many times I've heard from or read homesellers and realtors pumping up the value of OC schools. And they've been right to do so. Most OC school districts are just superior to the rest in the state. But given the budget cuts and layoffs planned in 2008, California's and OC's education ranking is facing almost certain decline. The only question is whether California might still manage to finish ahead of Louisiana, Alabama and Mississippi?

So declining quality of OC school districts might undermine the sales pitch of area realtors or homesellers when trying to justify the already ludicrous $550,000 plus single family home prices.

"The weather is 75 degrees and sunny almost every day, you're close to the mountains, the ocean and there's so much to do. Plus, the area schools are outstand.........Oh! Wait a minute. Back up. Scratch that bit about the local schools......"

The other interesting factor to watch in the coming years may be a decline in property tax revenues retrieved by the county. High foreclosures, combined with home prices not priced to market fundamentals, plus declining home sales, may equal fewer payers of property tax, which may equal Orange County Treasury trying hard not to look like Vallejo, California.

The facade is starting to crumble away, Orange County.

Now as far as OC jobs, let's hope few people are either in the mortgage industry or in the education market......

Rancid Truth Poll Results: Blog Readers Describe Their Household Budget

Recently I polled Rancid Truth blog visitors an important question:

"How would you describe your household budget in 2008?"

From 70 responses.....not exactly a huge scientific sampling, I realize, but.... these are the findings:

"Spending More Than Ever Before" = 1% (Thank you, Warren Buffet!)

"Making Moderate Spending Cuts" = 32%

"No major changes in spending compared to 2007 budget" = 20%

"Making drastic spending cuts" = 17%

"Struggling to make ends meet" = 5%

"I'm oh so screwed!" = 21%

An estimated 69 out of 70 are making some effort to scale back their spending.

Not good news for an economy that is fueled by high-octane, no-holds-barred consumerism and easy credit.

Interestingly, 15 respondents (20% of the sample) identify themselves as being "screwed" or shall we say "financially in a heap of trouble".

Now, I am not completely naive. Perhaps some of these same 15 respondants aren't actually describing themselves, but rather people they know, or perhaps people they really wish were "oh so screwed" financially. Schadenfreude runs rampant on housing crash blogs. I know. I'm often the one fanning the flames. Still, you only get to vote once on these blogpolls, so I'd like to believe that most readers make their own opinions count.

One other big takeaway is that a good number of respondents aren't really changing anything they're doing financially. A recession might be on it's way, or already here, but it isn't going to deter them from carrying on with life as normal.

Personally I selected item 2: "Making moderate spending cuts". I never spend very much money in the first place, but there are things I don't need to spend money on, and plenty of things and projects I can defer until much later in the year. I have no debt. No loans. But as a renter I have no "wealth-building" house either. (These new NAR commercials make me sick to my stomach. You gotta have balls of brass to....oh, nevermind.). My car is a 6 year old rice grinder. So do I fit the profile yet?

I sort of started in August. I've cut down on eating out. I'm planning trips with the car and grocery lists more carefully. And it's much better to drive my motorcycle to work every day now with gasoline in southern Cal at $3freaking51 per gallon! As long as I can avoid OC's finest SUV-driving maniacs for the 15 minute morning and evening commute, it's all good. And how can you beat 54 miles per gallon? Jesus, everyone should be on a motorcycle or moped right now. Let's turn Orange County into Bangkok or Beijing (sans all the air pollution, of course).

Back to the blogpoll, I do agree that revising the family household budget is a wise move even when times are good. It's even more important to review when financial times are less certain. As for those who can't make ends meet or feel "financially oh so screwed", there are people that can help. Talk to people you trust and get the help you need. Don't wait.

Proof George W. Bush is brilliant: Will Veto Foreclosure Bill

History will no doubt judge George Bush as one of the worst Presidents that the United State of America has ever had. No other comes close. Not James Buchanan. Not Andrew Johnson. Not Calvin Coolidge. Not Herbert Hoover. Not Jimmy Carter. Bush has shut them all out in head-to-head competition for presiding over the most incompetent international and domestic policies the "Divided" States of America and the world may have ever seen.

But that fact DOES NOT MEAN that even the worst President ever cannot demonstrate certain moments of brilliance.

Today, the George W. Bush Administration warns that it will veto the Foreclosure Bill!

To utilize a phrase right out of Bush's favorite and only night time reading:

"Hallelujah!"

This foreclosure bill, supported by Democratic Congress leaders Pelosi and Reid, "would change American bankruptcy laws to allow judges to cut interest rates and reduce what's owed on troubled borrowers' mortgages, provide $4 billion to communities to purchase and rehabilitate foreclosed homes, and improve disclosure of subprime mortgage loans in hopes that borrowers won't be surprised by big payment increases".

If you think this kind of legislation is insane, you are right. It's freaking ridiculously insane beyond measure! What kind of idiocy show are Democrats running here?

Let me see, is there anything more that elected leaders can do to completely undermine the principles of contracts, laissez-faire capitalism and, dare I say, the American Way? No, I don't think it is any more possible.

Bush may not realize it, but he's abso-freaking-lutely brilliant for sticking to his guns and listening to those in the industry with a shred of common sense and some basic ECON 110 knowledge.

By passing such legislative measures, the Congress is prolonging a much needed correction in the housing market and inadvertantly rewarding those who do not fulfill their obligations under contract (mortgage contracts), not to mention poignantly punishing millions of taxpaying Americans (they are consitituents too!) who did not gamble, who did not spend beyond their means, who did not speculate, who used financial common sense and stuck to their sane household budgets. It does not interest me, as an American taxpayer, that certain individuals do not read the fine print of contracts, cannot perform basic math calculations, nor have an attorney review the mortgage contract to gain a better understanding prior to signature. In my view, a combination of greed, irrational exhuberance and financial ineptitude placed Americans in the position of foreclosure. The banks, realtors and mortgage lenders are not innocent, but homedebtors should not get a free pass for having, how should I put this, a complete lack of financial common sense.

No one is entitled to a market of rising home values. No one. These homedebtors should have signed a traditional 30 year fixed rate mortgage in the first place. Can't afford the monthly payments? Well, then rent until the housing market adjusts and cools, until the greedy, "if-it's-gonna-be, it's-gotta-be-me" idiots get shaken out of their $650,000 treehouses.

The U.S. Congress (led by Harry Reid and Nancy Pelosi) has lost the plot . George Bush is actually doing something right here for a change.

God help us all and Barack Obama when he gets sworn in. May he somehow obtain a similar inkling of common sense and sufficient forebearance too with respect the national American housing crash and massive correction that is now underway. It cannot be stopped. One way or another, the market will find it's equilibrium. This correction simply must be allowed to run it's course, no matter how painful and devastating that might be to some. All will be affected. Even renters who pay income taxes. Families, children, school districts, men, women, rich and poor, black, white, it does not matter. All will be impacted.

The markets are desperate for finding that bottom and to know that it is solid.

Laissez-faire. Let it be.

OC Foreclosures Up 128% over 2007

Wow. And the National Association of Realtors is still telling everyone that it's a great time to buy a home. Check it out:



Wow.

Well, even the NAR goons can't keep this rancid news from hitting the front pages nationally:

OC Register report:

Orange County foreclosures up 128% January 2008 over January 2007.
9.5% from previous month December 2007.

California state wide foreclosures up 120% January 2008 over January 2007.

(Data courtesy of RealtyTrac)

CNN Money Report:

National foreclosures up 57% (courtesy of RealtyTrac report).

And one of the nation's most well-known financial houses, Merrill Lynch is forecasting home prices will fall by 15% in 2008 and another 10% in 2009. That will likely continue to fuel high foreclosure rates.

So why are realtors nationally telling people to buy a house now? Two main reasons.

1.) How else are they to earn commissions without sales transactions? They need transactions to earn 6% and they need buyers and sellers to believe in making such transactions now.

2.) The N.A.R.'s argument is that going into debt for a home is the smartest investment a family can make over the long run.
(Under "normal" circumstances, I might agree, given all things being equal, prices were somewhat in alignment to real incomes and to all other economic fundamentals that have guided housing values over time. Except housing market circumstances in Orange County are anything but normal, and prices are completely out of synch with incomes, and for that matter, reality.)

Yes, the market has crashed and bubble has burst, but I have this crazy song still in my head:

OC Register: 50% of Lake Forest Home Listings Are "Distressed Sales"

Mathew Padilla of the Orange County Register reports that as many as 50% of the home sales in Lake Forest are "distressed sales" (i.e. foreclosure or short sales).

As for the rest of illustrious Orange County as a whole, the estimate is that a third (32%) of all home listings are "distressed sales", up by 422 and a 9.5% change over recent two week time frame.

Scary.

California in January: More homes foreclosed that sold

According to this story in the Mercury News, home foreclosures outpaced home sales.

Holy crap!

Some shocking statistical trends from Dataquick:

December 2007

Homes Sold: 25,585

Homes Foreclosed: 12,783

January 2008:

Homes Sold: 19,145

Homes Foreclosed: 19,821

Perhaps most horrifying is the fact that the 19,821 foreclosures in January represented some $8 billion in mortgage loans in the state! Nevermind the credit status of the borrowers, how in the heck will the banks and mortgage lenders ever get that money back?

Chris Thornberg of Beacon Economics research and consulting firm:

"There's no way a market that slow can clear these kinds of foreclosures," "What that number says to me is you have more homes getting dumped on the market in terms of foreclosures than there is demand for homes."

First Layoff Your Employees, Then Splurge On Business Partner Ski Trips

Ritz-Carlton Bachelor Gulch Hotel. Cocktails. Champagne. Caviar. Limousines. Free lodging and ski-fittings.

The real estate and mortgage industry obviously doesn't have enough bad press these days.

It's one thing to hold all-expense paid sales meetings when things are going well with your business. But is is a good idea to continue such expenditures when the business is in considerable trouble?

After laying off over 11,000 employees in September to reduce costs, after declaring a record $1.6 billion loss, and admitting that over 90,000 (albeit only 1%) of their loans are facing almost certain foreclosure, Countrywide management considers it is essential to go all out on ski-junket trips to woo correspondent bankers who originate loans and then flog them to Countrywide.

Hotel Room: $750.00

Cocktails/Ski-Fittings: All paid

Dinner: $105 per plate, but not including Caviar of $140.00

Gratiuties: All paid

Wow. Must be nice.

Forget for a moment about the people who lied on their mortgage applications and are now "distressed homeowners" facing foreclosure and certain loss of their homes, what about Countrywide's stockholders?

Another example of good corporate governance which will no doubt contribute to federal income tax hikes in the future to pay for the aftermath.

Dude, where's my car?

No, you're car has not been stolen.

Sure, we all park like assholes once in a while, but that's probably not the reason why a growing number of Americans can't find their cars when they next step out of the local Starbucks or Home Depot.

It would appear that the never fail "mirror fogging test" utilized by so many home mortgage lenders turned out to also be the test of choice of financial institutions issuing automobile loans as well.

While everyone's mouths are agape at the sub-prime mortgage train wreck now unfolding across the United States, surprise, surprise, more Americans are now missing payments on their auto loans and credit cards too. Repossession lots for automobiles are filling up to record highs throughout the country. There are millions of Americans who have been as reckless as can be with their auto finances.

Consumer debt is crippling America to the tune of $2.5 trillion, double of what it was just 10 years ago!

That's not good.

Bush Stimulus Plan: Like "giving a drink to a drunk"

This article from the Desert Dispatch get's it right.

"The only answer is for the government to get out of the way and let the market self-correct."

And another good point:

"A problem caused by easy money is not going to be “solved” by more easy money, as the Bush administration signs stimulus legislation that increases the conforming-loan limit so that buyers in high-priced markets can get lower rates for higher mortgages. The Wall Street Journal reports that the effect may be minimal given that banks can be expected to charge higher fees on these higher-risk loans, and “lower rates won't be of much help to homeowners interested in refinancing if their house is now worth less than the size of their mortgage.” "

Americans for Prosperity Coalition Opposes Government Involvement

Laissez-faire. Let the market decide.

"We formed this coalition because we don't want the fallout from the sub-prime housing crisis to be used as a pretext for a larger more intrusive federal government," said Phil Kerpen, director of policy, Americans for Prosperity.

More:


Hold the banks and borrowers responsible. Don't punish those who pay income taxes and managed to show financial restraint over the last 10 years in the face of irrational exhuberance over housing.

Let the market decide. Yes, that means making them pay for their lack of vision, insatiable greed and, in many cases, out and out fraud. For Christ's sake, we've all watched Mutual of Omaha's "Wild Kingdom". Nature is brutal. For those who are reckless, inept and weak, capitalism can be a real bitch. Step in and interfere with nature (and the markets) at your peril.

If banks and other financial institutions are bailed out for reckless behavior, then when will their flamboyant, non-risk-averse mortgage carousels ever stop? That's just it. They would never stop. And come check out time, American taxpayers will end up facing a billion dollar price tag.

A little bit more information about Americans for Prosperity from their website:

"AFP is an organization of grassroots leaders who engage citizens in the name of limited government and free markets on the local, state and federal levels. The grassroots members of AFP advocate for public policies that champion the principles of entrepreneurship and fiscal and regulatory restraint."

Orange County Foreclosures: "It's really quite striking"

Courtesy of My SoCal Real Estate , a nice, informative report on Orange County foreclosures with comments about Lake Forest, Irvine, Anaheim, Santa Ana and Rancho Santa Margarita communities.

Are Realtors Worth the 6% Sales Commission? A Stanford Case Study

It has been often argued by me on this blog that the real estate industry needs reform. A good place for this reform to start, in my opinion, is the real estate sales profession. And one place to start with real estate sales professionals would be to address how they are compensated.

Today real estate sales professionals typically demand a 6% commission for a home sale. Some earn less. Some might manage to earn more. But 6% is the common refrain within residential real estate quarters. 6% is pervasive.

So what does this mean? If a real estate agent were successful at selling the house I am renting right from under me, and was able to achieve the Zillow market value of $600,000, then said agent would pull down around $36,000.

Are realtors worth the typical 6% sales commission?

Thanks to a recent case study (click PDF file) efforts of Dr. B. Douglas Bernheim and Mr. Jonathan Meer of Stanford University and the National Bureau of Economic Research (NBER), this question can be answered empirically.

The case study examined 6 key services that real estate agents offer and tried to determine whether the average 6% sales commission measured up to the value of these services. Below are the services identified and reviewed in the study:

1) "Staging" or preparing homes for sale, sending out sales flyers, placing advertisements, holding open houses, and recommending the house to buyers.

2) Assisting with negotiations.

3) Hooking up buyers to sellers and vice versa

4) Providing access to the Multiple Listing Service (MLS).

5) Providing market information and making recommendations pertaining to appropriate asking price.

6) Assisting with paperwork and legal documentation:

Some considerations:

Access to MLS (Service #4) = $300.00
Market info. from professional appraisals (Service #5) = $300.00
Legal fees (Service #6) = $700.00
Total = $1,300.00

Just 3 of the 6 services, the case study revealed, added up to only $1,300.00.
Just have of the services add up to 6% of a $22,000 home.

So the other three services (1, 2 and 3) must be either outlandishly valuable, or real estate sellers and buyers are both being overcharged on sales commissions.

The Stanford study proceeded to examine all services more closely. Given the peculiarities of on-campus homes sales, the case study was able to simply the data considered by deducting roles that were not applicable. This helped to isolate the effectiveness of real estate agent services with respect to listing prices, selling prices and days on market.

Dr. Bernheim and Mr. Meer reviewed how real estate agents affected list prices, selling prices, and speed of sale for the homes of Stanford staff or faculty sold on the university campus (Palo Alto, CA) campus over a 26 year period. The Stanford University FSH office (Faculty Staff Housing office) maintains a free listing of all houses on sale and assists with paperwork and legal documentation, therefore services 4 (access to MLS) and 6 (paperwork & legal doc assistance) are not needed in transactions. The eligible pool of people able to buy the homes on the Stanford campus is also small, so service 3 (matching sellers to buyers) is removed.

The verdict?

Bernheim and Meer found zero difference in sale price between homes sold through a broker and those sold without any representation and zero difference in initial asking price. This means that the value of real estate service 5 (market information and recommend asking price) was almost non-existant and service 2 (assist with negotiations) substantially diminished.

However, if speed of sale is the objective (reducing days on market), the study revealed that employing the services of a real estate agent may be a wise move (the "marginal effect of using a real estate agent").

The probability of a home shot up 25% with the use of a real estate agent or realtor in the first month on the market. In the second month, the probability of a sales was halved, but this was still considered a very significant probability by the research team.

So, out of curiousity, what was the median sales price of homes at the Stanford University campus over the studied 26 year duration?

$570,000.

At 6% that's $34,000 payable to the real estate agent.

According to Bernheim and Meer: "a steep price to pay for the value rendered".

NAR President Richard Gaylord

Is now the right time to buy a home in the United States of America?

CNBC asks the President of the National Association or Realtors (NAR), Mr. Richard Gaylord.

And his response?

- "It's the perfect time" to buy a home (cue: groans and rolling eyes in the studio and at home)

- There is "no better way to accumulate wealth" other than buying a home.

- Low interest rates

- High inventory and selection of homes available

- Higher loan-limits now in effect (temporarily)

- Easy to refinance toxic loans into safer loans (is it really?)


Holy Crap! Did we just witness the mainstream media reporters (CNBC) actually second-guessing the proven, never fail, "sunshine-day sales spiel" of a 30 year real estate industry veteran?

Tag Team Home Selling - Redrum Realty

Grab some popcorn, a glass of wine (white), cuddle up with your special Valentine, turn down the lights and enjoy the film:

Do you know anyone like Mr. Stanley Johnson?

Stanley: "Somebody help me!?"

Happy Valentines Day!

Whether you're love sick or just sick of love, the day has finally arrived once again. Happy St. Valentine's Day everybody!

I don't mind watching romantic films, but I'm actually a much greater fan of horror films. I know that horror films and romantic films don't mix. Unless of course the film starts out romantic and then suddenly, and perhaps slowly turns creepy and scary. Sometimes it turns creepy and scary right away and shocks you.

Here's a story of two people in love. Ever wonder what they'd be doing right about now?

Economic Ridiculous Act of 2008 - HR5140 Passes Into Law

Look at that smile. More damning evidence that Bush never made it to the 8:00 a.m. ECON 110 class in college.

George W. Bush and the 110th U.S. Congress agreed today to further mortgage away the future of America's young people via the passing of an historic economic stimulus plan designed to ward off normal market correction in housing and the economy at-large, and to maintain some semblence of the preposterous Greenspan-concocted status quo.

Inman News captures some of the wonderful details.

California can be proud that it's own congresswoman Nancy Pelosi sponsored the bill HR5140 alongside 15 other corruptoids whom readers of the Rancid Truth Blog may wish to write:

Rep Bachus, Spencer [AL-6] - 1/28/2008
Rep Becerra, Xavier [CA-31] - 1/28/2008
Rep Blunt, Roy [MO-7] - 1/28/2008
Rep Boehner, John A. [OH-8] - 1/28/2008
Rep Clyburn, James E. [SC-6] - 1/28/2008
Rep DeLauro, Rosa L. [CT-3] - 1/28/2008
Rep Emanuel, Rahm [IL-5] - 1/28/2008
Rep Frank, Barney [MA-4] - 1/28/2008
Rep Granger, Kay [TX-12] - 1/28/2008
Rep Hoyer, Steny H. [MD-5] - 1/28/2008
Rep Larson, John B. [CT-1] - 1/28/2008
Rep McCrery, Jim [LA-4] - 1/28/2008
Rep Miller, George [CA-7] - 1/28/2008
Rep Obey, David R. [WI-7] - 1/28/2008
Rep Rangel, Charles B. [NY-15] - 1/28/2008

So now mortgage loan limits, which were already at an all-time Fantasia Land high of $372,790 in high-cost markets (like Orange County and all of California) prior to HR5140, will now be inflated temporarily until December 31, 2008to $729,750!

(Very nice. I'm still thinking that auto loans might be next! Just imagine what you would buy with $200,000 auto loan limit? )

In addition, some Americans will be receiving checks from the U.S. government (Mother Gov) of anywhere between $200 and $600 in an effort to cajole everybody to just "go crazy".

Hey! Thanks mom!

Last I checked, the U.S. government was effectively bankrupt (if it weren't for the ability to print money).

So have scientist recently frankencloned some sort of money-making tree?

Just where the fuck is all of this free money supposed to come from?

Well, it's really quite easy. The answer is:Just borrow now and never pay it off. Force the younger generation to deal with that debt sewage. Just ensure that the current generations can live the status quo. There will be no tough decisions made now. No freaking way.

How much will H.R. 5140 cost future American taxpayers? Get a load of this from the Congressional Budget Office (CBO, or soon to be called CBzero):

H.R. 5140 would provide a tax rebate to individual tax filers who satisfy specific income requirements and special depreciation allowances for businesses.

In addition, the act would raise the loan limit for the Federal Housing
Administration single-family program. The Congressional Budget Office and Joint
Committee on Taxation estimate that H.R. 5140 would:

- Decrease revenues by $114 billion in 2008 and by a net amount of $82 billion between 2008 and 2018 (Total $196 billion?)

- Increase direct spending by $38 billion in 2008 and $42 billion over the 2008-2009 period.

In total, those changes would increase budget deficits (or reduce future surpluses) by $152 billion in 2008 and by a net amount of $124 billion over the 2008-2018 period.

All of the provisions of H.R. 5140 are designated as emergency requirements pursuant to Section 204 of S. Con. Res. 21 the Concurrent Resolution on the Budget for
Fiscal year 2008.

A few additional comments from this editor:

1.) Fuck!

2.) Anyone who voted for George W. Bush in 2000 and/or 2004 must now finally concede that they were very stupid to have done so. George II is not a fiscal conservative, nor a true Republican. He has presided over the beginning of the end.

3.) Sorry kids.

4.) The CBO's report section entitled "Estimated Costs to the Federal Government" indicates that H.R.5140 also sets aside $300 million for administrative expenses. (Click and open the PDF files).

5.) It's a political year and since Americans are held hostage by 2 horrible and non-representative political parties, here's my take on the political dogma regarding "taxes":

Democrats are accused of raising taxes and spending money like maniacs. Every time. No exceptions. Tax and spend is just part of the Democrat's fabric.

Republicans, conversely, do not raise taxes. They claim to only lower them. They lower them and then lower them some more. Republicans claim to lower taxes for the middle class. (I don't believe that the evidence bears this out since both Reagan and George I, for example, both signed income tax increases during their tenure). When Republicans get done backslapping and congratulating each other on not raising taxes to anybody, they start to borrow. And they borrow. And they borrow, borrow, borrow, borrow. Never stop borrowing.

Democrats and Republicans utilize different methods to finance projects, but do we witness different results?

While American taxpayers and workers are not looking, Democrats drive a sucker punch to the belly in the form of tax increases for social programs and entitlements.

Republicans spare the American people the sore belly today, preferring instead to politely deliver that same sucker punch to your little children and your grandchildren.

With Democrats in power, the financial suffering commences immediately. With Republicans in power, America is on the deferred suffering plan. This is the way each species survivese polictically.

If Markus Arelius were king, the H.R. 5140 should be torn up in place of the following initiatives:

Balance the U.S. national budget. Now.

Reign in federal spending across the board.

Income tax code should be simplified with a flat tax.

Businesses large and small should be incentivized (lower corporate taxes and credits) heavily to create jobs and products/solutions within U.S. shores

Campaign finance reforms must be implemented.

Televangelists, churches, Hollywood and Oprah should all stay the hell away from government affairs and federal coffers.

The rule of play is let the markets decide. Americans have forgotten that Laissez-faire capitalism can be a powerful ally

Secure the borders by force using the Army, Navy, Airforce and Marine forces as if we were surrounding the Tora Bora region.

Fire the TSA thoroughly and completely. Hire fully-trained U.S. military security personnel to perform airport security.

Build a 15 meter high fence from Texas to California at the Mexico border. Use the U.S. military to patrol and monitor the border.

The Housing Crash on Comedy Central

The housing crash as only Jon Stewart can deliver:

Some food for thought: Housing Bubble & California

According to the N.A.R. website and public awareness campaign "building wealth", realtors would have you believe this:

"Over the past 30 years, the median price of existing homes has increased an average of more than 6 percent every year, and home values nearly double every 10 years, according to historical data from NAR’s existing home-sales series."

Realtors across the US just love to take the nation to school with their historical data (which no one has full access to except themselves) and self-serving advocacy of tax credits, stimulus packages and expansion of jumbo mortgage limits.

Well, in the spirit of furthering education and embracing a larger point of view about real estate, it might be wise for Californians (real estate is local!) to at least consider what has really happened in the past, the events that brought us to the housing crash of 2007-2008, and what is happening right now:



And this:



And this:

Why the Bullshit Never Stops: Another California example.

The California Association of Realtors has launched a campaign called Market Matters.This is a new effort to educate consumers in California on opportunities within the current real estate market. Check it out. Read it through.

From the C.A.R. website:

“Without question, these are challenging times for REALTORS®, made more difficult by the barrage of negative stories about the home-buying process to which consumers are being exposed in print, on TV, the airwaves, and the Internet,” said C.A.R. President William E. Brown. “To that end, the Market Matters initiative will help make sense of what’s happening in today’s market, bolstered by clear, fact-based proof members can pass along to consumers about why now may be an opportune time to buy a home in California.”

Well stated, but is this true?

I mean, I like the sound of finding that diamond in the rough. What pearls of wisdom can fence-sitters like me in Orange County California come to expect from Realtors after being bolstered with knowledge from such an educational initiative based on market data and facts? (And why won't Realtors just share this illustrious historic statistical data openly with the rest of the public and allow for independent review and scrutiny?)

I'm very interested to know how it is that someone like myself who, teetering along the borders of the OC median income level, would love to buy a single-family home, is now suddenly able to afford the $490,000 to $750,000 priced 3 to 4 bedroom homes in this area?

Explain to me what has changed and how that is done.

Please, all-knowledgeable realtors and mortgage brokers in Orange County, do share with me how I will magically afford a $3,000 plus monthly mortgage payment, gasoline, groceries, insurance, monthly household expenses, OC property taxes and still managed to save any money?

Do explain how buying a home "now" as President Brown cajoles above, has perhaps never been such a great idea before. That home values in O.C. are just itching to skyrocket again and that homes are actually, today in February 2008, undervalued when all indications point to the reverse.

Use your Jedi mind tricks on me so that I may wander the OC open houses and be dazzled by the smell of warm chocolate chip cookies, granite countertops, ignoring the painted-over termite-infested boards and oil spots on the driveways.



Don't hold back, now! The C.A.R.'s Market Matters has almost surely enriched you with wisdom beyond that of mortal men and women. You are the real estate industy's trusted advisor. Help me and others to see the light. (Because most of us are actually ready to run for cover!)

I just want to understand how $650K and $800K is the accepted norm for home prices here, and how it's never going to get any better from this point forward in terms of affordability.

More importantly, why is now - February 2008, with all that has happened and all that we know - a great time to buy a home in Orange County?

Poetic Justice

Poetic Justice (definied by Wikipedia):

"Poetic justice is a literary device in which virtue is ultimately rewarded or vice punished, often in modern literature by an ironic twist of fate intimately related to the character's own conduct."

Multi-millionaire and philanthropist Warren Buffett once again just tells it like it is:

"It's sort of a little poetic justice, in that the people that brewed this toxic Kool-Aid found themselves drinking a lot of it in the end," he said.

Yet the banks, financial institutions, mortgage lending companies, brokers and realtors would rather that the violins start playing, poor disadvantage souls that they are.

How morally bankrupt do you have to be to support a bullshit economic stimulus package and increased jumbo loan limits when you also know the following is true?:

1.) The U.S. government continues to operate under an unbalanced budget.
2.) The U.S. national debt remains out of control at over US$ 9 trillion!
3.) The U.S. trade defecit is at an all-time high.
4.) The U.S. dollar is less than half it's previous value due to interest rate dives from the Federal Reserve chairman Bernanke.
5.) The average American is already swamped with consumer debt to the tune of $8,000 per head.
6.) The country is at technically still at war.
7.) The U.S. government gets its "money" from the taxes on revenues and income from its citizens and corporations. It also prints money, which it cannot do carelessly without disasterous repercussions (see Weimar Republic of Germany) nationally and globally. The U.S. government is not a building that walks around and does shit. It's the American taxpayer that walk around and do shit and the majority (at least for now) still constitute the American middle-class.
8.) Home prices have been skyrocketing for the last 5 years to unprecedented heights and totally disconnected with fundamentals. Now in 2008 home prices are falling like stones around the country. Millions of Americans followed the market cheerleading of the N.A.R. and its members since 2003 and made use of the recommended risky mortgage instruments (option ARMs, interest onlys, jumbo loans) to "get in now while you still can" and "rates may never be this low again" and "home prices will only go up in the future" sales tactics.

They then threw credit scores, income documents and caution to the wind. All for a chance at riches. All for that fat 6% commission check. All for earning the commission and fees on the signed note. Americans are already holding the bag on what could be a trillion dollar financial disaster.

But no, let's find a way to rescue the housing gamblers and financially inepts that can't read a soup label, let alone a mortgage contract.

It's not enough. More! More! Let's find a way to save the banks and mortgage lenders who ignored proven and sound financial lending safeguards that have been in place and forged into brass plaques since the 1940s. Let's do all we can to help the "fence sitters" in Orange County take out even bigger loans (from $417,000 to now $730,000!) in order to afford the still ridiculous $650,000 asking prices for 3 bedroom, 2.5 bath stucco shitboxes in Lake Forest, Irvine, Laguna Niguel.

Let's convince congress people to dangle even more debt-crack in front of the already debt-engorged American public.

That will save the banks. That will save the livelihood of realtors. That will save the mortgage industry. And won't it just save us all?

Let's do all we can to undermine the American capitalist system by destroying the very tenant of laissez faire. When the markets respond negatively (and naturally) to lack of objective information, overvalued assets and out-and-out fraud, let's do all we can to intervene in an effort to avoid the inevitable!

Somebody will come along and pick up the tab. They just have to.


The United States of America isn't quite dangling by a frayed thread just yet.

Come on everbody! There's plenty of work to do.

You! Grab that telephone! Call your congressmen today!

Better yet, call up someone you don't know in China, India and Europe and pull your best pitches to convince them that America has never been a better place to invest their hard earned cash!

Revenge of the Homedebtor

Gradually, we begin to observe greater despondancy and desperation. Homedebtors slowly begin to realize that they not only have been duped into a $750,000 scam, but that not few, but many are in on the same game. They are also realizing that few people are paying attention or responding to complaints. The media doesn't really care.

So what do you do when you've been screwed over royally, financially ruined and nobody will listen?

You make them listen. You make them all listen. Yes, drag their sorry caracasses through the U.S. justice system and the American court of public opinion.

Is this just the beginning?

You bet it is.

Happy Realtors

Need help?

Loan restructure. Foreclosure. Short sale.

Dog Day Afternoons Within Foreclosed Homes

With home foreclosures increasing into the triple digits the last several months nationwide, leave it to CNN to provide the public a sensationalist story about the abandonment of pets in foreclosed homes.

It would appear that many homedebtors are not only financially inept, but they lack a moral compass as well.

It would be silly to conclude that a large number of foreclosing homedebtors are leaving their pets in the home and just turning in the keys. No where in the CNN article is anything mentioned about the number of foreclosed home with cats, dogs, birds or other pets. There have been a number of cases, yes, but it surely a large number of people.

That said, what on earth could have possibly prevented these homedebtors from simply taking their unwanted dogs/cats, etc. down to the local humane society shelter?

People like this simply do not deserve compassion from the taxpaying public nor the bloodsucking politicians in Washington D.C.

Why bail these jerks out? So they can just buy more overpriced homes with risky loans and leave their pets in them afterward to run around in their own fecal matter with no food, nor water.

Is this the part where we're surprised?

The FBI is finally starting to take an interest in the handywork of up to 14 different companies for mortgage fraud, accounting fraud, insider trading and other violations.

Holy Crap!

A conviction for mortgage fraud alone may be punishable by up to 30 years in prison or a $1,000,000 fine, or both.

Realtors: "We believe that there's a psychological block".

Look, there is no housing crisis, because the National Association of Realtors says so.

Got it?

Don't make us send out the realtor clowns to convince you!

You just have a psychological mental block of some kind. You're just "verstopft". You've just eaten a bad slice of beef. Perhaps a bit of underdone potato.

Housing market crash? Bwahahaha-hell no! Just get out there and buy a house today! Now's a great time to buy and build long-term wealth!?

Come on, who's with us! Let's go!

This article by Ms. Alice Cuneo of Adage.com get's it right.

Why can't the N.A.R. and it's members just tell it like it is?
I know the 6% is calling, but while they promote the potential of building long-term wealth by "owning" a home, why can't they focus on the long-term as an organization themselves? Do they really believe that the lies can continue with integrity and credibility intact?

CBS 60 Minutes Special Report: "A House of Cards"

The American mainstream media finally gets a clue about what's happened in the American housing market and reports it to the nation.

Gee, thanks CBS - for pulling your head out of your ass long enough to actually report something! I think you guys actually broke a network world record here in terms of story timeliness.

I just loved the question from the clueless homedebtor: "If we can't fix it, what do we do?"

You freaking rent, assholes! Just like everybody else!

There is no guarantee that the value of a home will go up. It may go down. It's just an adobe.

"That's OK as long as the home value goes up!"

No one can guarantee that home prices will always appreciate. You signed a home mortgage, not a guarantee nor an entitlement to housing appreciation and an easy-out low-payment re-fi.

Where do these people come from? Did they graduate from high-school? Did they ever take a mathematics or personal finance class? Are these college grads? If yes, Jesus Christ, this country is completely screwed!

You can't "fix it" because you had no business going into debt for a 2 bedroom $350,000 house in the first place!

If you had the mental capacity to consider the upside scenario of low monthly payments and appreciating home value, then what possibly would have prevented you from imagining the reverse scenario of higher interest rates (adjusted higher monthly payments) and depreciating home value?

Nothing.

Caveat emptor, people. Caveat-freaking-emptor.

I'm sorry. I cannot be kind about this.

Everyone works hard in this country. Everyone sacrifices more of their time for work and making money than they really should just to provide for their future and for their families. Americans everywhere are working themselves to death. (Just ask any European.) Contrary to what realtors may tell you, home values can and will go down - sometimes when values detach from fundamentals (like the median incomes of potential buyers), home values fall dramatically.

Americans are either in a position to weather such storms financially or they are not. What is new about that?

The only difference I can see is that these foreclosing homedebtors appear to be "surprised" that this could happen to them, or feel that they were lied to by unscrupulous realtors or mortgage brokers. At the very least, these individuals should have shelled out $300.00 to hire a lawyer to review the mortgage before they signed it.

American taxpayers should be outraged at those in this country who think it's OK to be financially inept, it's OK to throw caution to the wind for free cash, it's OK to place their families into the the dire consequences of risky decisions (loss of home, foreclosure, homelessness, bankruptcy, poor credit rating, deeper debt).

Somebody explain to me why any of these people deserve a bailout by other taxpayers who used common sense and refused to buy into the realtor hype and Ponzi scheme?

I don't want people to suffer, but damn it somebody has to pay. Somebody has to learn a lesson, otherwise the stupidity carousel keeps going around and around and everyone is worse off.

Nancy Pelosi, Georgia Bush, Harry Reid all think it's OK to use government funds (i.e. your tax money, since the US government is bankrupt) to bail out the debts of people who have zero business owning such homes in the first place, or to bail out financial institutions who did not following basic financial lending guidelines and fundamental principles of finance.

This is wrong on so many levels.

But yeah, thanks CBS. You guys are real heroes with this one. It's better than nothing.

Everything that is wrong with Lake Forest real estate in one example.

An available apartment for sale on El Toro road in Lake Forest, California, 92630

Bedrooms: 1

Bathrooms: 1

Square Footage: 610

Appliances: Stove, dishwasher, sink

Interior Amenities: vaulted ceilings, attic
(WTF? I know there are no basements in California, but since when has an "attic" ever been considered an "amenity"?)

Building Amenities: Patio, swimming pool, guest parking, hot tub

Price: Wait for it..........$225,000!

A couple of things:

1.) Note the realtor sales pitch on this one. This is Classic Orange County:

FIRST TIME BUYERS, OWN IT!! GET YOU HELP WITH DOWN PAYMENT!! IF YOU HAVE GOOD CREDIT AND MAKE UNDER $70,0000!!"

Is this realtor yelling at us about a 1 bedroom apartment? And is that "$70,0000" somewhere between zero and "eleventy thousand dollars"? Is it close to fifty-eleven thousand dollars?

2.) The median income in Lake Forest is around $74,000. Therefore, this price is fucking perfect! Brilliant! Wait, did you say you have a family with children? Umm......hmmm...what are we going to do about that?

3.) Well if the blurry photos don't win them over, then why not upsell "El Toro Road"? You know you want to!

El Toro road, for those that have never visited this beautiful city in south Orange County, is just about the most congested, noisy and dangerous roadway you can frequent through Lake Forest. Yes indeed. There are 6 lanes of traffic and between 5:00 a.m and 1:00 a.m. it's pretty much packed from Laguna Niguel all the way to freaking Cook's Corner.

The state of California seems to consider El Toro some sort of speedway as the speed limit is set at 55 mph. You know what that means. Everyone's driving at 65 mph. And there are shitloads of traffic lights-like ever 100 meters. Prepare for this chorus to run through your brain while trying to sleep inside that lovely 1 bedroom adobe:

Brrrrrhhhhhuuum! ......Screech!.......Honk....Brrrrrrrruuuuuum!!!........Screech!

And thank goodness there's a Home Depot on El Toro road near the 5 freeway too, otherwise one would observe far fewer 18 wheel big rigs on this illustrious thoroughfare!

OK, enough slamming the apartment and it's location.

Let's just imagine for one second that there are some wonderful neighbors next door, a friendly staff at the front desk, and that the realtor is a very nice person. The single prospective buyer should be very happy. Plus there is a pool.

But that's really not the point. How is it possible that the market here could even consider a 1 bedroom, 1 bathroom 610 sq. feet apartment to be worth $225,000 or almost 3 times the median income here, and nobody asks why?

I mean, yes, 50% of the population in Lake Forest could afford this apartment, and rather easily. But most have the common sense not to be so high on drugs as to actually buy it.

And so it is also true that 50% of the population of Lake Forest cannot afford such an apartment because of their income.

This is an example of insanity. Of local home values, no matter how small the property, gone horribly awry. This is Orange County real estate.

There was a time, I suppose, when realtors stated $225,000 for a 1 bedroom, 1 bathroom apartment and did so with a straight face.

Not any more.

This is not serious.

Sooner or later this market will become sober again.

Wanna see something really scary?

Then click here.

Special thanks to Bubble Markets Inventory Tracking blog for posting this first!

And Holy crap!

Land of the free, home of the brave, rugged individualism, picking yourself up by your entrepreneurial bootstraps and just get-r-done!

But Goddamn!

What's next?

Hold on tight, people!

Bernanke's Unwise Intervention & A Better Path

Cutting the federal funds rate 0.75% did nothing to prevent the sell off today. The DJ industrial fell 128 points. The S&P500 also finished down, but not by that much - only 15 points. The worst is really yet to come later this year as more earnings information is released and confidence in recovery starts to dwindle.

It'd be different if employment figures were robust and the dollar was maintaining its value compared to other global currencies.

The Fed policy has cheapened the dollar even more, which for a country trillions of dollars in debt to foreign government, borrowing $10.00 but paying back only $5.00 is actually a good thing in the short-term. Just stop borrowing $10.00. Save more and borrow less.

No way. Not good enough for Americans.

We have to consume and consume or the economy just doesn't go. We need fast access to fund and we need credit as fuel to get where we want to be.

Bernanke's early morning rate cut certainly helps out those individuals with massive HELOCs, credit card debts and auto loan payments.

But is this really the kind of intervention the U.S. economy needs?

Wouldn't it be more prudent to save the dollar and prevent inflation from raging (which it now most certainly will)?

The rate cut is like giving the cocaine addict more cocaine with no strings attached, no consequences.

Strangely, this time around it might not be good enough. Even by rewarding the most financially destructive behaviors, it probably will not be enough to protect the U.S. dollar or build confidence in the US economy.

Remember that investors in the US economy are not all Americans. The entire world has vested interest in the U.S. economy and insist on it's health and financial good-standing in order to earn its funds.

But what do foreign investors see?

The US currency has been crashed into a tree. The trade defecit if represented as a stack of paper would almost reach Uranus. Employment is declining. The national debt has reached unsustainable levels and continues to be completeld ignored by American politicians and citizens alike. There is virtually no remaining manufacturing base that would demonstrate national production of goods, create jobs and contributed to GDP and community wealth. The U.S. remains at war with no end in sight and with unclear objectives, strategy and tactics.
There also awaits a massive future liability ahead in terms tax increases on individuals and businesses in order to fund social security and medicare and not completely bankrupt the government.

Why should I put my hard-earned money into a machine that is broken down or soon will be? Someone tell me why?

Keep spending, my fellow Americans. Enjoy those few extra percentage points of salvation on your monthly credit card balance that you never manage to clear.
Spend on your credit cards until you drop on the ground flailing about. But note this: What you are doing is destroying the country and and your ways cannot be sustained. There will be dire consequences.

No.

Stop.

1.) Save your money.

2.) Pay off your debts completely.

3.) Cut up all of your credit cards.

4.) Setup and emergency fund of up to $5,000 or more, if you can (rainy day money).

5.) Reduce your spending (stop eating out, stop the frivolous trips in the car, reduce water, heating & AC use, stop the shopping sprees at Target and TJ Maxx!)

6.) Maintain a balanced your monthly budget. Account for revenue coming in, expenses going out and don't forget to set money aside as savings. Pay yourself first.

7.) Splurge once a month on something nice (food, clothes, etc.). Just make sure you've accured for it (i.e. you've planned or set money aside for it).

8.) Hold off on any big purchases (cars, boats, motorcycles). And don't take out any new loans.

9.) If you're not using it, sell it.

10.) Update your resume and network with colleagues and contacts. The United States is entering a recession, make no mistake. Conventional wisdom says that when you're neighbor loses his/her job, it's a recession. But when you lose your job, it's a depression. Don't get depressed. Don't be the last one to know that you've been fiyaahd! Be prepared.

11.) Enjoy and celebrate life. Spend time with your family, spouse and children. Teach them to appreciate what you have right now. It's ok to get by on less.

12.) Write a letter to George W. Bush, Barbara Boxer and Dianne Feinstein and tell them "no thanks." The tax cut stimulus package of providing $800.00 does nothing to address the root problem of a balanced budget: a stronger US currency, a stronger production base in the US to create jobs and GDP, the horrific US trade defecit. Such a stimulus measure also makes the national debt even worse and does not instil confidence in those who might invest in our country or its assets.