From Robert Kiyosaki: “In early summer of 2005, I sent a warning to the Rich Dad community that the real estate market was cooling down. After all, we know that all booms go bust eventually, and every party comes to an end.

While many readers thanked me for the words of caution, many others sent me hate mail. An angry real estate broker called me and said, “Are you trying to ruin my business?”

The angry readers should draw insight from something Warren Buffett said: “For some reason, people take their cues from price action rather than from values. What doesn’t work is when you start doing things that you don’t understand or because they worked last week for someone else.”

The sage of Omaha sums up pithily: “The dumbest reason in the world to buy a stock is because it’s going up.”

Personally, I would say, “The dumbest reason to buy anything is because the price is going up.” Yet that’s what people do when they invest. They generally don’t buy high-priced things when they shop.”

Smart Investing Amidst Real Estate Mania

World of Steve Quayle

“Ameriquest Mortgage Co. has finalized a $325 million settlement of allegations that it deceived borrowers, falsified loan documents and pressured appraisers to overstate home values, the Los Angeles Times reported Saturday.”

“Settling the case also is expected to clear the way for Ameriquest’s founder, Los Angeles billionaire Roland E. Arnall, to become the U.S. ambassador to the Netherlands, reports said.”

Inman News

Good article in the Chicago Trib highlights the plight of US manufacturing workers.

“We’re in a cycle right now where corporations have the advantage, and unions don’t,” he said. “But soon the cycle will change.”

Not while Chinese manufacturing workers cost 1/33 of a US manufacturing worker. Even at PPP (Purchasing Power Parity), about 1/23 of a US manufacturing worker.

The anecdotal evidence from this weekend’s reading is compelling. The housing bubble really is bursting. Now a “bubble” is really an emotional thing - a mania, a crowd madness - where fundamentals are forgotten and huge risks are thoughtlessly taken. What now remains to be seen is how deep the trough that follows the crest will be, both in terms of emotion and prices.

The real estate industry is shamelessly pumping the idea that it is just a “flattening” in prices, that appreciation will merely slow, there is nothing to be worried about, this is just a temporary glitch in the 20%+ appreciation to which every real estate speculator is entitled.

One of the better real estate bubble blogs features a sampling of “lowballs” - situations unheard of in the bubble era where someone goes in with a “lowball” offer, well below the asking price, which is accepted. This is a sample from the most recent list:

MLS# 2107679 - Chatham, NJ
List Price $1,325,000 (Reduced from $1,490,000)
Sales Price $1,000,000 (23.53% Lowball!)
$490,000 off Original List Price

MLS# 2096978 - North Arlington, NJ
List Price $390,000
Sales Price $300,000 (23.08% Lowball!)

MLS# 2083944 - Mount Arlington, NJ
List Price $1,200,000 (Reduced from $1,600,000)
Sales Price $950,000 (20.83% Lowball!)
$650,000 off Original List Price

These are folks pushing the “GMTFO” button - probably wisely. These buyers, who are attempting to catch a falling knife, will probably suffer worse. But it is interesting and telling.