3 Steps To Selling ANY HOUSE, GUARANTEED!

I've had recent occasions to be in the company of Realtors lately. They are pissed. When they talk to each other, they are incredulous that no one is buying. No. That's really not it. They are incredulous that despite expending HUGE amounts of money on "event style" marketing, "Crazy Eddie" price cutting, and things they didn't even have to think about 1-2 years ago, that they ARE getting plenty of walk-thru traffic, and they are imploring every single warm body to make an offer, ANY OFFER, and that NO ONE is doing so. No One.

They are certainly NOT making offers at ask. Even dummies know that's insane. But no one is low-balling either. People are looking, or at least going through the motions or window shopping, but I saw an open house in an area where I was doing a job, and all the attending Realtors did was practically beg people to make an offer, ANYTHING. And after what seemed like 200 people... Nada.

This jives well with what my anecdotal observation of Black Friday downtown. Well, the best summary I have is, "Where the hell is everyone?". It was like a normal Tuesday, with a decent number of empty parking spaces. In fact it was more like a slow Tuesday. Sidewalks empty. No one that I saw was holding bags of goodies. And it was 11:30AM! Maybe Duncan can shed more light on this situation, but to my jaded eyes, downtown looked like a bust.

There were exceptions. Fred Meyer parking lots were overrun. But this whole theme of economic lockup seems to be taking hold around here. Not just a slowdown, but a complete seizing up of the economic gears; No one buying, no one selling, ANYTHING.

And what's just INSANE is these Realtors seemed totally BAFFLED as to the cause. They were actually MAD at people for not buying. Yes, they are mad. Like "we" owe them a living. But they do have to eat, after all they are almost human. So I thought I'd share a secret, 3 Golden Rules for selling ANY HOME, that I learned on a Mystical Odyssey that took me deep into a Burmese jungle for 7 years of complete fasting with Hindu & Buddhist monks chanting mantras to achieve Universal understanding.

Well, it was either that or I had 18 beers, got lost in the woods, stumbled on a frat-drunk-fest that had turned homo-erotic (and tell me what frat-drunk-fest does not go homo on ya?), and they tied me to a tree... and I've had to blot the rest from my mind after years of intense therapy.

So here are the three Inviolable rules for the Absolute Guaranteed Sale of Any Property, In Any Condition, In Any Location, No Matter How Horrendous. You should also remember this moment as the exact point in time when you learned all that is possible & necessary for effective real estate marketing.

Rule 1) Cut the price
Rule 2) Cut the price, but this time cut it to rock bottom, then cut it 10% more
Rule 3) Go to Rule 1

The Realtors I referred to earlier? They were only practicing Rule 1, and NOT Rule 2, and certainly not 3. Some implement a WEAK version of Rule 2, and then wonder why they do NOT SELL. If you don't cut it to ROCK BOTTOM, as stated clearly in the rule, then Rule 2 is superfluous. You could have gotten by with Rule 1 & 3! It's ALL THREE, or nothing.

Let me illustrate an analogous scenario about what has happened in the Bend real estate market over the past 3 years. OK, imagine you are at the local used car dealer. You are interested in a pile of crap jalopy. The salesman comes over, detecting a heat signature & a pulse, and begins his schtick.

Car Guy: "Hey, she's a beauty ain't she? I've seen 200 buyers today who were interested, but you, my friend, are the person I've been saving this little jewel for."
You: "I see you want $1,200."
Car Guy: "Oh no. That's wrong. We had someone with a pulse walk in, so we automatically boost the price 20%, whenever anyone shows any interest. So the price is $1,440."
You: "What!"
Car Guy: "Ooop, righteous indignation, that's another 20%. It's now $1,725."
You: "Are you insane?"
Car Guy: "Insults? Those are good for 10%! Now it's $1,900."
You: "But nothing's changed! It's the same piece of crap car it was 2 minutes ago, and you just keep raising the price for no reason."
Car Guy: "You're right! You cannot believe this business! Everytime ANYTHING happens, like a buyer even shows up, we raise the price! And what's great is all our competition does the same thing! It's UNBELIEVABLE!"
You: "Wow, can I do this?"
Car Guy: "Sure, anyone can. All you have to do is fog a mirror, and you can get into this schtick! It's NO LOSE! Everyone who gets in seems to make everyone else MORE MONEY! It's mind boggling!"
You: "Wow! Doesn't the value of the car even count for anything?"
Car Guy: "Of course not! The car itself is the most unimportant part of this gig, it really doesn't even matter if it runs or not. Technically, many of the heaps I sell aren't even really cars. It's awesome!"
You: "Dang, a lot of my friends think this is a total scam, domed to implode. But now that I see it from the inside, I can see how it really is the greatest business ever created. I'm in!"

And so it goes. Unfortunately Bend area Realtors have forgotten the fundamental premise that The Car Actually Matters & The Price Actually Matters. They are used to The Bubble Paradigm, where what you are selling & the price are irrelevant. (Actually this is not true: A HIGH price is BETTER, because period 1 CASH returns are HIGHER, the higher the price any given person pays. Hence it is good for everyone to pay the absolute HIGHEST PRICE POSSIBLE. This is know as "BUBBLE LOGIC".) Until they remember The Good Old Days, aka REALITY, they will wallow in a 100% DEAD MARKET.

Now, due to the side effects of the Bubble, loose lending, crooked appraisers & Realtors, prices actually went to many-fold where they would have gone on their own. This has produced a market best visualized as 2 bell curves: One is the bell-curve of sellers. They are so far off to the right that the intersection with the buyers bell curve, which is far, FAR to the left, is practically nil.

The observant among you will now quickly see the brilliance of The 3 Rules. The buyers bell curve is stuck FAR TO THE LEFT, lenders have seen to that. There simply is NO MORE MONEY for the bubble schtick, so the buyer bell curve WILL NOT BUDGE. The sellers curve must SIMPLY MOVE LEFT, ie PRICES MUST COME DOWN. That's it. That's all there is. Realtors who are CONFUSED as to why should review The 3 Rules.

IF IT AIN'T SELLING, THERE IS ONE AND ONLY ONE SOLUTION: CUT PRICE.

From Bloomberg: Housing Market's Stench Means Cut Price to Sell

Nov. 19 (Bloomberg) -- Raffles, festive balloons, open houses, car giveaways. Will any of these incentives sell houses? Not at the moment.

You don't have to be particularly creative in a market glutted with homes for sale. The painful reality is that homes are commodities. There are more than 4 million of them sitting out there unsold and more coming on the market every day due to foreclosures. If you really need to sell a house, price is the one lever that will move a property.

Almost everywhere your competition is abundant while buyers are waiting for prices to fall even more. U.S. existing-home prices are expected to drop almost 2 percent this year nationally, according to the National Association of Realtors, and are likely to fall further in areas oversaturated with homes for sale.

``Buyers just want price,'' says Mike Morgan, a Stuart, Florida-based lawyer, real-estate broker and consultant who researches property markets for hedge funds and financial institutions. ``Buyers have become educated and they can easily cut through the fluffy incentives.''

Morgan doesn't see any national rebound until at least 2010; maybe longer if builders keep constructing homes, and if banks continue dumping foreclosed properties on the market.

Morgan's Perspective

There's no way of telling how many homes are truly on the market since the picture is so dynamic.

About 2 million properties may be foreclosed upon in the coming year alone, resulting in an estimated loss of $223 billion in U.S. home equity, particularly in California, New York, Florida and Illinois, according to the Center for Responsible Lending, a North Carolina-based non-profit group.

Living near a foreclosed home may even trim as much as $5,000 from your own home's market value, the center says. Some 44 million households will be affected, or about a third of all U.S. housing units.

Selling has become a trying proposition in this dour market. Morgan has found that traditional deal-sweeteners such as paying broker bonuses and giving cash back on closing to the buyer aren't working as well as price cuts.

``On one $429,000 home a client wanted me to sell, the seller wanted to give the broker a $30,000 bonus on top of the commission. I told him it wouldn't help. I told him to just drop the price.''

Because the market is so price-sensitive -- buyers want bargains and sellers want to get prices they saw at the market's peak -- you have to be flexible when advertising your home.

Morgan suggests you sell exclusively through Internet-based property sites and local Multiple Listing Services. He has found that newspaper ads, signs and open houses don't work as well as the Internet.

What Works

When you price your property, you need to employ a strategy that can run counter to your emotional perception of the home's value. That sometimes means listing at a price far below what you have anchored upon.

Like any commodity, a home's price will follow supply-and- demand trends. In theory, custom homes in desirable neighborhoods should hold their value. Other properties should be discounted depending on how many similar homes or condos are on the market. Every market is different, though.

``If you don't get any calls on your listing price after a week, drop your price $10,000 or about 2 percent of your original asking price,'' Morgan says.

``The market will tell you what the price of your home is. You better be priced 10 percent under your competition -- and then be prepared to think about accepting offers under that.''

I know that's a disheartening strategy. Yet if you have to sell now, you need to take an honest look at housing inventories in your area.

Check Inventories

Selling in Miami? You are up against almost 80,000 listed condos and single-family homes, according to ZipRealty, an online brokerage service.

There are almost 30,000 units in Las Vegas; 42,000 in Boston; 35,000 in Seattle and 110,000 in Los Angeles. Those inventories are through October.

Price-cutting is the order of business in most major markets. The service's price-reduction index, for example, shows that more than half the listings surveyed in Boston, Orange County and Sacramento, California, are discounted.

Even markets that were considered relatively stable are bloated with unsold homes.

``People were telling me Boston and Seattle were OK,'' said Morgan, who recently visited both cities. ``I've got news for those folks. They aren't OK.''

Trouble Ahead

Will the Federal Reserve's quarter-point rate cut on Oct. 31 revive the moribund housing market?

It may spur a few buyers, but it won't help homeowners unable to refinance out of unaffordable adjustable-rate loans and headed for foreclosure. Nor will it clear out the massive inventory of newly built and previously owned homes.

Untold numbers of sellers are holding on to their properties or selling without brokers. Many pull homes off the market to rent at a loss.

Also look for builders to keep finishing new homes because they need to move inventory.

To sell those houses, they have to offer steep discounts. They will be advertising and doing anything they can to attract buyers. It will take more than balloons and donuts, though, to land the number of buyers they need to stay in business.

Brilliant, eh? Cut price & they will come. If you DO cut price, and they come, but DO NOT BUY, it is BECAUSE YOUR PRICE IS STILL TOO HIGH. That's where Rule 3 kicks in. KEEP CUTTING. AND CUT DEEPER. Then repeat as necessary.

What do most Realtors do? Well, most are still stuck on Cloud 9 via Kool-Aid intervenous drip. You no doubt heard about the infamous Buena Vista home blowout, where 230 builder homes will be placed on the auction block at "fire sale" prices. No? Here's a refresher:

Builder aims to clear inventory

Home builder Roger Pollock got a little too excited with Portland's frothy housing market.

Now, he's cashing out -- for whatever his homes will fetch.

Pollock's Lake Oswego company, Buena Vista Custom Homes, built too many houses during the boom in towns from Scappoose to Happy Valley to Bend. Next month, Pollock will put all 230 of his unsold homes and condos up for a two-day auction. The asking prices have ranged from $300,000 to $650,000. The bids will start as low as $69,000.

Pollock's move is the first clear public signal that a Portland-area homebuilder is feeling serious pain from the housing slowdown -- and doing something drastic about it.

Portland's housing market remains relatively stable compared to the busted markets in Florida, Ohio and California. But home builders here also sit on a growing backlog of finished but unsold homes. In September, the region had 8.6 months' worth of homes to sell, nearly double the figure from a year earlier.

Home builders, conditioned to be optimists, typically don't like to talk about bad news. It will only discourage consumers, they say, creating more bad news. But Pollock was unusually frank in dissecting his troubles.

"We were over-aggressive and too slow to react to the changes in the market and that has created an over-supply of finished homes," he said in a statement.

Builders nationwide are dreaming up ways to deal with the housing hangover without too much pain.

In Baltimore, Pulte Homes Inc. staged a Halloween-themed "Monster Sale" to sell new townhomes with granite countertops for as low as $480,000. The townhomes sold for $600,000 two years ago.

In Irvine, Calif., builder Lennar Corp. plans to build about 250 homes but leave them off the market rather than discount the prices, the Wall Street Journal reported this week.

It's hard to tell if other Portland-area builders will follow Pollock to the auction block.

Home builders' financial health depends on a host of variables, from their lenders to locations. But short-term trends aren't moving in the industry's direction.

"There's just a lot of stuff sitting out there," said Jerry Johnson, a housing economist in Portland. " . . . This is a pretty unforgiving market right now."

Johnson said this would be the first home auction he's heard of in 18 years in the business.

Pollock, 46, of Lake Oswego said life was good during the boom.

He sold as many as 50 homes a month as late as spring 2006. Each sale netted Pollock's company an average of $150,000 in profit. "We made more money than I could ever dream in the last few years," Pollock said in an interview.

But the boom went bust this summer.

A growing number of subprime borrowers -- those with spotty credit -- got behind on mortgage payments or walked away from their loans. The delinquencies exposed questionable lending practices by mortgage brokers who put some buyers in homes they couldn't afford.

The result: tighter loan standards that reduce the pool of buyers for home builders like Pollock.

When the mortgage market took an August nose dive, Pollock said, sales went with it. In October, he sold eight homes. Five previous sales fell through. So his net sales came to three. "That doesn't pay the bills," Pollock said.

At that rate, Pollock would need six years to sell off his inventory.

Even the closed sales came with discounts that cut into profits. Pollock said he cleared as little as $25,000 per home, an 80 percent drop.

Pollock said he's current on all his construction loans and isn't in danger of bankruptcy. But he decided he'd be better off taking a direct hit now with an auction than suffering a slow bleed with interest payments on construction loans as he struggles to sell off inventory.

That's why Pollock decided on the auction.

Homes at auctions elsewhere have sold for about 40 percent of the original asking price. Pollock said the same figure would be realistic here. He wants to clear all his inventory by the end of the year even if it's "very possible" the company will lose money in the process. "We'll pretty much do whatever it takes," Pollock said.

Despite the auction, Pollock plans to start new subdivisions early next year in Tigard, Oregon City, Southwest Portland and Happy Valley.

Only this time, Pollock said, he'll build only after he has a buyer on the hook.

OK, so we've got this builder who watched the money pile up at $150K a throw, who's finally had it with this MONEY-LOSING thing, and is going to blow 'em out, no matter the cost. Well, ALMOST no matter the cost. Now, what I found interesting was The Realtor and Mortgage Broker Reaction to this housing Armageddon. From the "Active Rain real estate Network" (I know, sounds legit already):

AUCTION, AUCTION -- GET IN AND BUY IT!!

Thankfully, Oregon has been one of the better states so far in terms of foreclosures and defaults...having had less problems than many states. Additionally we have been lucky in not seeing the drastic reductions in home prices. It seems, though, that the challenges for the builders has been tough. This weekend there was a write up in The Oregonian explaining that a custom builder, Buena Vista Custom Homes, will be auctioning off 248 brand new custom homes in Oregon and Washington. With the bidding starting as low as $69,000.00, there are sure to be some great deals on purchases! This is a process that is new to me with the new homes, and it should prove interesting to watch and learn about.

I went online and explored the entire process, so I wanted to share my research findings with you!

This is an excellent opportunity for purchasing. Make certain that you do your homework, investigate the property during the open inspection period, check into the detailed legal descriptions, and make a very educated decision. I look forward to hearing your thoughts on this opportunity. And, if you have ever been involved in a situation like this before, please let us know, here, how it works from your perspective! I will be watching, reading, and writing! :)

It's a confirmed RE professional post with the obligatory 600 exclamation points per sentence, but what I found amazing (HORRIFIC?), was the INANE comments by other Realtors:

Hi Amy ~ Yes, I agree! It will be interesting to see what transpires. I would imagine that investors would like this prospect. Thanks for reading and commenting. Have a very Happy Thanksgiving!

It looks like some bargains will be had there. With prices starting in the high $60k, that is unbelieveable! That should be an interesting and eventful thing to participate in. Have a Happy google gobble Thanksgiving Day! :)

Hi Dave ~ Yes, it should certainly be intriguing! I will try to remember to keep this updated after the event has gone by. It just may be a good idea for a lot of builders out there left holding a big bag of inventory! Like the "google/gobble" Thanksgiving Day!

I recently went to an auction by Liska and Assoc. a big auctioneer of real estate working out of Grants Pass in Oregon. There was no minimum bid, an estate left to the state of Oregon in the heart of the popular Irvinton neighborhood.. You needed a cashiers check for $15k just to bid. I was prepared to bid a bit over $500k for my clients, but the ending bid was over $750k! RMV was only about $800k, and the home an extreme fixer! The buyer's were in a frenzy, and kept bidding higher and higher, it seemed just to "win", at the shock to most of the crowd. I think these homes will be sold at a price that is somewhat discounted, but not at all close to the opening bid! It is an interesting way to sell a home that usually works well per statistics on the Liska and Assoc. website.

Tanya ~ Thank you for sharing your experience. I am looking forward to how this one works out. These homes are brand new, most having never been lived in. I imagine that the minimum bid will be quickly passed up. At the same time, I cannot help but wonder...if these do not sell at a high value, then we are looking at reduced property values in the brand new homes which were sold in the neighboring developments. It should definitely prove interesting! Thanks again for your insight. May your Thanksgiving be richly blessed...

I have been doing some investigating about this. The terms state that there is a reserve price that the bidder must meet in order to win the bid and they won't disclose that price. They do say it's not the low published price they list on their site. Those prices are to generate interest only. The auctioner acts as the sellers agent and can not only open a bid but can continue to bid succesively on top of any other bidders or his own bid until the reserve price is met. I don't know why they won't just start at the reserve price other than it won't sound nearly as good as saying "bids starting as low as $69,000". I suppose there could be deals to be had there but not as good as some people might expect. People really need to make sure they have all there financing in order becasue they have to close in 30 days and if they don't they will lose the 5% down they have to put on the house at the auction. There are some frustrated people out there that have had bad experiences at REDC auctions.

Tim ~ Thanks for dropping by and commenting. I have not yet had a chance to go in and read all of the terms. I ihave, however, read a lot. Somehow I missed the reserve price notice being higher than the published price. That is interesting. Although, I suspected that the low prices are only to generate interest. Why else would a builder oblige in selling that many homes for such a low price? I do think, though, that if you do your homework, a good deal could be had in this opportunity! As for people being frustrated with REDC auctions, I am sure that it is the case. If you look hard enough, people are frustrated with every company for one reason or another. Thanks again for commenting. Feel free to comment again! :)

This seems to be a scam to me. I would not participate in an auction where the reserve price is not stated. You can do all of your due diligence, inspect the property and then be the high bidder and not win if your bid is not as high as the reserve price. The reserve price is above the starting bid and probably quite a bit above the starting bid. If the seller would actually be willing to sell around the starting bid price, assuming little interest in a particular property, they would have opted to have gone with no reserve.

If you are looking for a bargain, you would be better served to look at homes that are for sale and then make an offer to the seller that you believe represents the foreseeable market value. For example, take home auction PE001. The starting bid is $319,000 and the "previously valued at" amount is $509.950. Assuming a 8% decline in values from the appraisal at the time the home was started to the current time, the actual value is likely to be $468,000. However, if you buy at $468,000 you will pay a 5% premium and so any bid over $444,000 will be overpaying. However, the reserve is likely set around the $444,000 amount. The builder could certainly sell the home a little below that price and so he will not be willing to set the reserve much lower than that. By contrast, if you go around the area and find a similar home, you can take your time and make an offer and not worry about being swept up in emotions in a fixed game where the house wins and you lose.

If you think that this type of auction gives you a chance to get a bargain, you have duped by the marketing. You will end up paying market value or higher. A consumer should never be willing to participate in a reserve auction.

Hi Jacob ~ It seems very clear to me that you have done a considerable amount of homework or you have had some measure of "personal" experience with these types of transactions. As one who has never participated in this, let alone heard of such a thing, I am happy to have your input.

Just to clarify, I am by no means suggesting that anyone get "duped" by marketing. Admittedly, on the blog itself, I caution people to do their homework. As you have done so, it appears that for you, this is not the best option. I disagree, however, that someone else cannot get a better deal. It depends on the quantity and quality of your homework. If you have the patience to stand by and make sure that you are getting the best deal, great. In other words...no one is forcing you to bid higher than what your predetermined amount is.

I do respect and admire your passion and the fact that you are willing to share with this group. This is exactly what this type of forum is designed for...open discussion! So, thank you again for your contribution here. Please feel free to watch this blog and continue to make your opinions known. They certainly seem valid to me! :)

Best Regards,

Sarah Eubanks

Hi Sarah. In the terms and conditions it says all properties have a reserve price and the staring bid is not the reserve price. The prices they show on the auction page are the "starting bid" price so that would say to me the reserve price is higher. Has to be, I'm sure he won't take a loss on these homes. I think it's possible to get a deal too, just not what people think they'll get.

Tim ~ Thank you for your interest in this topic. I agree with you on most all of this. I am not so sure that the builder is unwilling to take a loss. Additionally, with the profit margin that a builder makes, even at really inexpensive, they would not likely take a loss. On average, a general contractor builds 20 to 30 percent profit margin into the cost of a custom built home. So, if a home costs $300K, the builders profit would account for $60K-$90K. In that respect, the actual cost to the builder then, would of course be somewhere between $240K-$210K.

The other factor which I see being equally important is that the builder may be willing to take a loss on a few of the homes. When his inventory is sitting at almost 250 homes, he needs the capital to continue his source of income. I guess I see it the same way that a car dealership does actually sell loss leaders. It definitely draws the attention of the crowd, and it can be a write off on the losses. I registered for the event so that i can go and check it out. I will then be knowledgeable the next time that I am hear of something like this!

Again, Tim, your knowledge, thoughts, and opinions are greatly appreciated! :)

Seriously, these are all the comments. You see that after some obligatory BACK SLAPPING and GLAD HANDING bullshit (RE Marketing 101: KISS ASS TILL YOU DIE), some Reality-mongers kick-in with their Captain Bringdown Bullshit to "Active" rain on this lovefest parade.

You can SEE it. Realtors stuck in BUBBLE MODE, literally cannot communicate with a Reality based consumer. THIS is the problem. They are hoping to MARKET THEIR WAY OUT OF THIS. Won't work. Marketing DOES WORK when the seller Bell Curve overlaps the buyer bell curve in a significant fashion, and you are able to TALK those very close to the left edge over to your side.

This of course IS NOT THE CASE, and never will be until prices COLLAPSE, and the seller bell curve of expectations begins to significantly overlap buyers WILLINGNESS & ABILITY to pay. For the US housing market, this is probably a 25-30% haircut. In Bend it is FAR WORSE, probably more than a CUT IN HALF. Far more.

Get off your Kool-Aid drip folks. The Bubble is NO MORE.

LOOK AT NOVEMBER stats (when they arrive): I can state with LITTLE FEAR of being wrong, that November will be a dead-bang IMPLOSION around here. It will be a total DISASTER. Will prices implode? Probably not. The Kool-Aid intravenous drip is still flowing at full bore. What will happen is NOTHING WILL SELL. The gears have seized up. Christmas in Bend will be Armageddon.

And I think there still remains the occasional straggler that STILL BELIEVES that the purpose of this blog is to KILL THE LOCAL MARKET. Nothing could be more ridiculous. Following the Three Rules will LITERALLY GUARANTEE that ALL HOMES, LOTS, APT BUILDINGS, and useless PILES OF SHIT, WILL SELL, NO MATTER WHAT. The purpose of this blog is NOT to somehow depress the local market, which of course is inanely stupid & impossible, it is to simply be REALISTIC. If you want good old fashioned GLOOM & DOOM from a legit source, well you could do "well" to listen to the CEO of Wells Fargo:

Wells Fargo CEO says housing worst since Great Depression

Wells Fargo CEO John Stumpf said Thursday that housing is in the worst shape since the economic devastation of the 1930s.

"We have not seen a nationwide decline in housing like this since the Great Depression," Stumpf told those attending a Merrill Lynch & Co. (NYSE: MER) investment conference.

He anticipates hard times ahead for home owners in financial straits -- and their bankers.

"I don't think we're in the ninth inning of winding this," Stumpf said. "If we are, it's an extra-inning game.

"The losses have turned out to be greater than expected because home prices have declined faster and deeper than expected," said Stumpf, who took the reins at the nation's fifth-largest bank earlier in June. California's Central Valley and the Midwest's auto-manufacturing states (namely, Michigan and Ohio) are creating significant mortgage losses for Wells Fargo & Co. (NYSE: WFC) and other lenders.

Wells expects additional loan losses in the current quarter and into 2008, especially in its home equity loan portfolio. The bank realized $153 million in home equity loan losses in the third quarter.

Still, Stumpf said the bank has "minimal" exposure to collateralized debt obligations and other troubled mortgage-related securities that have prompted other banks to write off a total of $40 billion -- so far.

On Friday, Keefe, Bruyette & Woods downgraded its rating on Wells Fargo's shares to "underperform" from "market perform." In a note to clients, KBW analyst Frederick Cannon said the San Francisco bank enjoys a strong franchise but it will suffer significant loan losses in the declining housing market.

Stumpf told investors that he was unaware of some of exotic mortgage-related investments being made by competitors until reading about them in the newspaper.

"It's interesting that the industry has invented new ways to lose money when the old ways seemed to work just fine," he quipped.

Stumpf's comments this week were more pessimistic than his luncheon remarks last month to the Financial Women's Association of San Francisco.

At that time, he was critical of some of the risky, exotic mortgages offered by competitors in recent years, such as adjustable-rate mortgages that give borrowers a choice on what monthly payment they'd like to make each month. The so-called option ARMs can have negative amortization which means the loan balance rises over time instead of being paid off.

Stumpf said Wells didn't offer such mortgages because it didn't seem right. The San Francisco bank's federal regulators don't allow negative amortization to occur with credit card debt, Stumpf observed, so why offer such loans on the typical borrower's largest and most important asset?

The "worst since the Great Depression", and WE'RE NOT EVEN CLOSE TO IT ENDING. Not gloomy enough? Here's the chief Economist for Goldman Sachs:

Goldman Economist: $2 Trillion Hit?

Jan Hatzius (right), chief economist at Goldman Sachs, made waves today with a note released last night that put possible credit losses from mortgage defualts at $2 trillion, due to leverage. Hatzius’s anlaysis have drawn attention before: Back in March 2006, Hatzius said U.S. housing was overvalued by about 20%, based on historical relationships between monthly mortgage payments and median household incomes.

Jan Hatzius (Photo: NABE)

Here are highlights from Thursday’s note:

“Estimates of the likely credit losses on outstanding mortgages have grown sharply in recent months. A back-of-the-envelope calculation using past default experience in different home price environments now suggests losses of around $400 billion. … [O]ne sometimes hears that it is just equivalent to one bad day in the stock market. But this analogy is wrong.”

“[I]f leveraged investors see $200 billion of the $400 billion aggregate credit loss, they might need to scale back their lending by $2 trillion. … This is a large shock. It corresponds to 7% of the total debt owed by US nonfinancial sectors (households, nonfinancial companies, and government).”

“Our conclusion is that the likely mortgage credit losses pose a significantly bigger macroeconomic risk than generally recognized.” – Tim Hanrahan

Personally, I think Hatzuis' prediction will go the way of virtually EVERY SINGLE PREDICTION MADE BY BIG MONEY ECONOMISTS:

WAY TOO CONSERVATIVE

Every single prediction, EVEN MINE, will be probably proven too conservative. Hatzius predicts a $2 trillion dollar hit, in a $21 trillion market. I mean, SORRY, but that's chicken feed. 10%? The stock market periodically has that much wiped out in ONE DAY. I think we MIGHT have The BIG 14. What's the Big 14? The number of digits required to measure the losses.

$10,000,000,000,000

Oh yes. The Big $10 TRILLION. Just for some perspective, the GDP of the European Union is $13.9 trillion, the US is $13.5 trillion, and China is $11.6 trillion.

(Yeah, motherfuckin CHINA is within striking distance of overtaking WHITEY as the DOMINANT ECONOMIC FORCE ON THIS PLANET. It ain't MAYBE ANYMORE. Think Wal-Mart vs K-mart in the late 80's. And we AIN'T FUCKIN WAL-MART, THEY ARE. THIS is the story of THE CENTURY in this country. The US & the European Union are about to play second fiddle to China, who will run this little patch of dirt. THAT will be the TRUE DOWNSIDE of this RE BUBBLE bursting: Communist China will take over as The World Economic Power, NOT US. Well, I guess we had a good run.)

Anyway, point is, there are only THREE countries, or conglomerations of countries, that are even close to $10 trillion. Who's after China? Welp, India & Japan are in the $4 trillion area. Germany, UK, France, and Brazil are in the $2's. The you got a lot of pikers in the $1's, like Russia, Italy, Spain, South Korea, Mexico, Canada, and Indonesia.

We are about to lose an amount of money that is only even remotely approached by the GDP of the U.S., China, or the entirety of the EU. Of course, NOTHING of this magnitude has EVER happened before, short of the Great Depression. And back then, we didn't have China holding $1 trillion of our IOU's. We are deluding ourselves if we think this can end well. Even our government leaders have resorted to bald face lying to "talk" this thing up:

Despite clear signs of surging prices in the U.S., the Fed took a major step in undermining its own credibility with its most recent forecast that inflation would remain below 2% for the next three years.

As the forecast clearly paved the way for additional Fed rate cuts, Wall Street ignored its absurdity and heralded the announcement as legitimate good news. The celebration is likely infuriating foreign governments, who must be dumbstruck that the Fed can claim contained inflation at home while the declining dollar is fueling massive inflation problems around the world.

In order to maintain their pegs to the dollar, foreign central banks have been forced to print their own currencies to buy all the dollars accumulated by their exporters. This has resulted in upward pressure on consumer prices in their respective nations, with annual increases now reaching alarming rates. Bernanke’s message of benign neglect means U.S. exported inflation will likely increase substantially in the years ahead, exacerbating the inflation problems for those nations now supporting the dollar.

In December, OPEC nations will convene to discuss continuing their dollar pegs. If they were looking for a reason to drop them, the Fed may have just provided it.

STILL think it's "Not so Bad"? Think again. The VERY INFRASTRUCTURE of home lending is IMPLODING:

WASHINGTON (Reuters) - If anyone thinks the current U.S. housing downturn is bad now, things would get far worse if Fannie Mae or Freddie Mac were to suddenly stop buying mortgages, a move that would drive up the costs of home loans and devastate the economy. Fannie Mae and Freddie Mac, the nation's two largest sources of mortgage finance respectively, recently reported combined losses of $3.5 billion. Borrowing costs have skyrocketed and investors have erased billions of dollars in each company's equity market capitalizations. Few think the two companies are likely to pull out of the housing market, even temporarily. However, if the stream of home loan failures were to force the companies to suspend new mortgage investments, the market for mortgage bonds would "freeze up," said Tom Sowanick, chief investment officer of Clearbrook Financial LLC Fannie Mae and Freddie Mac own or guarantee a combined $4.8 trillion of U.S. home mortgage loans of more than 40 percent of the total outstanding.

If you don't think it'll get bad, then think about this: In the Good Old Days, you had to have something on the order of 20-25% DOWN to buy a house. Then it went to 10-15%. This actually almost DOUBLES the amount of house you can buy, when the required down is halved. But not quite, because INCOME STILL MATTERED back then. The down payments were cut to 5%, and 2%, and 1%, and finally NOTHING. But through most of those slashing downpayment requirements, there was STILL some semblance of INCOME required. In 2003-2006, the income requirement was finally FRAUDED-OVER, and there could be technically be an INFINITE amount of house bought by ANYONE. And of course that's exactly what happened.

Ultimately, Bubbles burst when SOMEONE pulls their head out (usually a stick in the mud banker, bearing more than a cursory resemblance to BendBB, I'll bet), and actually wants to GET PAID ON THEIR LOAN. Well, since there was NO INCOME except for the self-supporting mechanism of a housing ATM, the entire Ponzi scheme implodes spectacularly.

$2 trillion? I don't think so. That's linear thinking. Think vicious cycle, self reinforcing geometric IMPLOSION. THAT yields something closer to $10 TRILLION. And $10 trillion yields New Economic Superpower, and it ain't us. We will rue the day we heaped praise on this BUBBLE thing.

I've often said The Implosion of The Local Bend Housing Bubble is the Biggest Story In The History Of Bend. And I suppose it is, but what will be "covered" will be the After-Effects: The implosion of downtown, mass population exodus, "Siberian" ghost towns & destination resorts (ie Subdiv chameleons). But one story will probably overwhelm them all, and it is coming SOON: There will come a day SOON, when it is announced on the Nightly News, that we are #2. Our venerated spot of 800lb gorilla will unceremoniously go to China. But what I GUARANTEE YOU WILL NOT HEAR, is that the RE Bubble is THE NUMBER ONE, SINGLE PRIMARY CAUSE. Then several years later, it'll HAPPEN AGAIN, except this time it'll be India. We'll be #3. Then, it'll happen again again, and again. We'll be somewhere in the top 10, but I'll GUARANTEE you right now, that by the time your kids are thinking of retirement, we'll be Second Rate. You'll be able to look at a 50 year chart of growth, and a rapid deceleration of WHITEY WORLD will be pegged to RIGHT NOW.

The BEST POSSIBLE THING THAT COULD HAPPEN? A rapid, complete & total annihilation of the US RE market. The faster it is over, the faster we can rebuild. Here's "17 reasons America needs a recession: Think positive, this 'slow motion train wreck' is good for the U.S."

1. Purge the excesses of the housing boom

No, it's not heartless. Not like wartime calculations of "acceptable collateral damage." Yes, The Economist admits "the economic and social costs of recession are painful: unemployment, lower wages and profits, and bankruptcy." But we can't reverse Greenspan's excessive rate cuts that created the housing/credit crisis. It'll be painful for everyone, especially millions of unlucky, mislead homeowners who must bear the brunt of Wall Street's greed and Washington's policy failures.

2. U.S. dollar wake-up call

Reverse the dollar's free fall and revive our global credibility. Warnings from China, France, Iran, Venezuela and supermodel Gisele haven't fazed Washington. Recession will.

3. Write-offs

Expose Wall Street's shadow-banking system. They're playing with $300 trillion in derivatives and still hiding over $100 billion of toxic off-balance sheet asset-backed securities, plus another $300 billion hidden worldwide. A lack of transparency is killing our international credibility. Write it all off, now!

4. Budgeting

Force fiscal restraint back into government. America has been living way beyond its means for years: A recession will cut back revenues at all levels of government and cutbacks will encourage balanced budgeting.

5. Overconfidence

A recession will wake up short-term investors playing the market. In bull markets traders ride the rising tide, gaining false confidence that they're financial geniuses. Downturns bruise egos but encourage rational long-term strategies.

6. Ratings

Rating agencies have massive conflicts of interest; they aren't doing their job. They're supposed to represent the investors, but favor Corporate America, which pays for the reports. Shake them up.

7. China

Trigger an internal recession in China. Make it realize America's not going into debt forever to finance China's domestic growth and military war machine. A recession will also slow recycling their reserves through sovereign funds to our equities.

8. Oil

Force the energy and auto industries to get serious about emission standards and reducing oil dependency.

9. Inflation

Expose the "core inflation" farce Washington uses to sugarcoat reality.

10. Moral hazard

Slow the Fed from cutting interest rates to bail out speculators.

11. War costs

Force Washington to get honest about how it's going to pay for our wars, other than supplemental bills that are worse than Enron-style debt financing.

12. CEO pay

Further expose CEO compensation that's now about five hundred times the salaries of workers, compared with about 40 times a generation ago.

13. Privatization

Stop the privatization of our federal government to no-bid contractors and high-priced mercenary armies fighting our wars.

14. Entitlements

Force Congress to get serious about the coming Social Security/Medicare disaster. With boomers now retiring, this problem can only get worse: A recession now could avoid a depression later.

15. Consumers

Yes, we're all living way beyond our means, piling up excessive credit-card debt, encouraged by government leaders who tell us "deficits don't matter." Recessions will pressure individuals to reduce spending and increase savings.

16. Regulation

Lobbyists have replaced regulation. Extreme theories of unrestrained free trade plus zero regulation just don't work; proven by our credit crisis, hedge funds' nondisclosures, private-equity taxation, rating agencies failures, junk home mortgages, and more. Get real, folks.

17. Sacrifice

"We have not seen a nationwide decline in housing like this since the Great Depression, says Wells Fargo CEO John Stumpf. As individuals and as a nation Americans have always performed best in crises, like the Depression or WWII, times when we're all asked to make sacrifices. Pampering us with interest-rate cuts and tax cuts during the Iraq and Afghan wars may have stimulated the economy temporarily, but they delayed the real damage of the '90s stock bubble while setting the stage for this new subprime/credit crisis.

Wake up, the train wrecked. Time to think positive, find solutions, demand sacrifices.

When you get sick, your body goes into Healing Mode: It ain't fun -- it sucks -- but it is how the virus is purged. This country is desperately FUCKED UP. Sleeping outside of Best Buy to go shopping the day after Thanksgiving? WTF is that? This place has become a consumerist-fueled nightmare of excess. "Green" marketing, is purportedly about reusing what we have to conserve resources. But of course it has been bastardized by Corporate America (I am a Republican, for God's sake!), to schill MORE SHIT WE DON'T NEED. We worship LOSERS like Brittany & Paris, who are famous for NO OTHER REASON, than they are famous. THEY ARE FUCKIN LOW LIFE LOSERS -- yet in today's America they are adored.

We are so fuckin' dead. Corporate America has convinced us that our Very Souls are tied to CONSUMPTION. Feel like shit? Buy an X-box. Business going to shit? Go out & get an Escalade. It's often said the rest of the World wants what America has. I sure as hell hope that ain't true, cuz what we have is fuckin pathological.

We NEED a recession, or WORSE. We need to get some RATIONAL VALUES again. If there is one Good Thing that comes out of the Economic Armageddon that is coming our way courtesy of the RE Bubble Implosion, hopefully it is THAT; That we are turned from a bunch of whiny ass, litigious, frivolous, fame-worshipping, airhead consumerist lunatics to real people again who don't value our existence based on the amount of shit we have lying around a house we can't afford.

I want to end this lovefest, with a review of why a violation of the Three Rules by a local builder, left their genitals whithered & useless. Last Sunday, the Bulletin summarized the recent "auction" by Brooks of their last 3 RiverWild condos, "How builders plan to face housing slide". Of course this WAS NOT a real auction. A real auction is WELL ADVERTISED (like this one), draws financially able buyers (like this one), and let's the market SET THE PRICE (UNLIKE this one).

Of course, there were ridiculous minimums set on these 3 RiverWild dogs. Who could forget the Oct 12 puffery, meant to get our Pavlovian Consumerist tongues slobbering uncontrollably:

Developer will auction townhomes

Brooks knocked $99,000 to $184,000 off the asking price of each of the three 2,000-square-foot units to come up with minimum bid prices, Rosenthal said. One was reduced from $839,000 to $640,000; another from $839,000 to $625,000; and the third, which comes equipped “down to the corkscrew” with $40,000 worth of furniture, was slashed from $879,000 to $695,000.

Of course, the title of the piece is a misnomer, there was no "auction". Per wikipedia:
An auction is the process of buying and selling goods by offering them up for bid, taking bids, and then selling the item to the winning bidder. In economic theory, an auction is a method for determining the value of a commodity that has an undetermined or variable price.

Of course, the Brooks sale doesn't fit this definition. A more accurate title for this piece SHOULD HAVE BEEN: "Brooks marks down townhomes, hopes for sale". Of course this is dead boring & pedestrian, happens everyday. Even the Buena Vista "auction" doesn't really qualify. A REAL AUCTION let's the market set the price. This WILL NOT HAPPEN.

Look what happened when Brooks even attempted a FAKE AUCTION: 2/3rds FAILURE RATE. And that's AFTER a 25% price reduction. See? Rule #3 VIOLATED, HENCE FAILURE.

You wanna fail? Just do Rule 1, or 2, but not all 3. And the SLOWER you pursue these rules the LONGER it takes & THE LOWER the price you will ultimately sell for.

OK, FREE YOUR MIND!

This thing WILL NOT END, until we hit rock bottom. It is your PATRIOTIC DUTY to drop the price on every house you have for sale 30% RIGHT NOW. Then keep dropping. You will do it anyway, I can GUARANTEE YOU THAT.
Look at Hollern: He dropped 25% in one shot, and STILL HAD A 2/3rds FAILURE RATE. And he had a sleazy angle, lots of press, and tons of money. You? You got shit. You got a stable of wildly overpriced CRAP. Drop it 40% now, and you MIGHT sell one or two. I'm saying this to help people get 'er done. They will actually realize that MASSIVE, DRASTIC price drops are THE ONLY THING THAT'LL WORK.

And everytime you even THINK that your dumbass 5 or 10% price reduction will have ANY IMPACT WHATSOEVER, remember that Brooks has 1,000,000% more resources than you, AND THEY COULD NOT MAKE A 25% PRICE DROP WORK. The left tail of the sellers bell curve & the right tail of the buyers ARE STILL MILES APART AFTER A 25% PRICE CUT. That should tell you where True Equilibrium is:

50% BELOW WHERE WE ARE NOW, MINIMUM

OK, just ONE MORE thing. Timmy post this link over on BendBB: "Getting worried downtown". I recommend your read the whole thing, if only for the Long Wave, macro viewpoint that only stoic Bristish economist can muster. I'll skip the narrative, and just post some interesting graphs:

Needless to say, we are in uncharted territory. This graphs distills a debt-fueled hedonistic nightmare of frenzied consumerism that will ultimately claim the entirety of the US economy as it's victim.

After a DECADE of steadily deteriorating lending practices, the jig is up. The American Ponzi Lending Scheme Apocalypse is near. CASH will not just be King, it'll be everything from lowly serf on up.

Case-Shiller shows clearly that a fall back to 120 would be easily achievable, and that's a 33% haircut. Charting Bend on this same graph would be a line that goes vertical & off the chart in the 2003-2005 area. A CUT IN HALF is probably THE BEST possible, mega-OPTIMISTIC scenario for this little patch of scrub we call home.

If the market value of your home drops 50% between last Summer & rock bottom, count yourself DAMN LUCKY. That's IF you're still in Bend & still alive, cuz this thing will play out over DECADES.

From Bruce, over on BendBB:

The Kübler-Ross model describes, in five discrete stages, the process by which people deal with grief and tragedy, especially when diagnosed with a terminal illness. The model was introduced by Elisabeth Kübler-Ross in her 1969 book "On Death and Dying". The stages have become well-known as the "Five Stages of Grief".

1. Denial: The initial stage: "It can't be happening."
2. Anger: "Why ME? It's not fair!" (either referring to God, oneself, or anybody perceived, rightly or wrongly, as "responsible")
3. Bargaining: "Just let me live to see my child(ren) graduate."
4. Depression: "I'm so sad, why bother with anything?"
5. Acceptance: "It's going to be OK."

Where are we now? From what I've seen, Stage 2. RE pros are ANGRY. We have been chronicling Stage 1 for OVER 1 year now. Hollern is starting to to feel the front edge of this thing:

The company also announced plans to move its main Bend real estate office from Awbrey Butte, where it has been for years, into the company’s headquarters building on Franklin Avenue downtown. Its three-member mortgage group spun off to form a new company, Hollern said, and three of its 17 Bend-based real estate brokers have left for new careers or retirement.

Those 3 Realtors that blew up, are actually very prescient or lucky. Of course, Hollern still has to put a Happy Face on this debacle. I know for a fact that the "3-member mortgage group spun off to form a new company", was in reality turned into a 3-man cotton candy wagon at the circus. You DON'T "spin off" that sort of crap. That's like me saying I'm going to "SPIN OFF" this fuckin blog. OK, 100% BULLSHIT. This sort of NON-SALABILITY characterizes so many Central Oregon businesses, it's overwhelming. Brooks Resources itself is TOTALLY UNSALABLE. Because it LOSES MONEY? Hell no, it's made a fortune. But like a one man law firm or accountant, the ONLY thing worth 2 cents is the people, who would promptly walk out the door after a sale.

Anway, back to grief. This thing has already taken over a year for stage 1, so it seems reasonable to think latter stages will take AT LEAST as long.

Bend will probably go through Hell through the end of the next decade.

Geez... OK, one more little thing: In case you think for some reason that the poor lending practices that saturated the industry mean that 2005-2006 will be some of the worst performing loans, and will represent a foreclosure hump going forward, like a snake digesting a rabbit, think again. From the NYTimes, "As Defaults Rise, Washington Worries":

Yes. The ONLY loans performing WORSE than the Bubble loans of 2005-2006 are the Bubble Loans of 2007! We are still in the teeth of making HORRIBLY ill-advised loans on houses. Except now it is driven by a complete deterioration of the fundamentals. Shore up lending standards ALL YOU WANT, and still we'll see defaults at a HEMORRHAGING rate. Look at some of these jewels of insight:

"The recent weakness in job growth and falling home prices in many parts of the country have probably contributed to the higher default rates on loans from early this year, specialists say. Job losses in the housing industry have put pressure on the economies of formerly fast-growing states like Arizona and Florida. And declining home prices have made it harder for borrowers to refinance loans, especially in cases where the buyers could afford the homes only with the help of the low introductory rates on adjustable mortgages.

Those borrowers are expected to encounter further strain in the months and years ahead as their loans are reset to higher variable rates. When they try to refinance their mortgages, many of them will face stricter lending standards. Many lenders are now requiring borrowers to provide documentation of their incomes, and they will not lend more than 80 to 90 percent of a house’s value.

A survey of 500 borrowers with adjustable-rate loans released yesterday in Cleveland showed that the resetting of rates will put a significant strain on homeowners."

Wow. So there'll be job loss as a result of the bursting of the biggest speculative bubble of all time? Really? Further strain on borrowers as their rates reset & their payments double? You don't say!

Funny, that I & the giants on whose shoulders I stand (you are a giant BEM, right?) have been saying this stuff FOR 2 YEARS! Man, no wonder it feels like I'm whistling in the wilderness.

Folks, remember that WAYYYY back, BEM, I and others were reviled & ridiculed for even suggesting there even was a bubble. Of course, now it's common knowledge & the lead story on the nightly news. NOW, believe me when I tell you that this thing has not even seen the full light of day. AND that Bend will be orders of magnitude WORSE than the US as a whole. The losses in this region will simply boggle the mind. Case studies for Harvard Business School in 20 years & such. We will achieve infamy as being the single greatest speculative local hotbed, in the greatest speculative bubble, ever achieved in modern history. We will also achieve the dubious honor as the greatest specualtive implosion in US real estate market history, EVER.

This blog & it's cohorts have been DEAD RIGHT to date... maybe it's time you figure out that this thing isn't going to be "OK" in a month, or a year, or even 2. It's Calamityville, OK. You will not be able to believe how bad it'll get. In 10 years you won't even recognize this place.

GHOST TOWN