Recent data from the latest Census indicates that median household income in California is $57,000,
while median net worth of a Californian household is $61,000 based on [outdated] figures from 2008
when the numbers were even better than they are now. Here in the Golden State where women herald
Louis Vuitton and Prada and every other person drives an expensive luxury car, these numbers seem a
gross underestimate. However, FHA insured loans that require only a 3.5 percent down payment allow
people with little savings to buy homes and hidden $800 lease payments on those foreign cars only add
to the image of affluence that Californians seem bent on maintaining. Clearly it is not just the bubble
contributing to this trend of negative equity, but psychology as well.

The median income to median price of a home is extremely important because it shows what investors
can afford in a home price. Typically the banks are going to require that you have a 40% – 45% debt to
income ratio in order to qualify. This means that all of your debts including car payments, credit card
payment, house payments and more cannot be more than 40% – 45% of your income in order for you
to qualify for financing. Since the median income in California is $57,000 then then maximum amount
of debt one can pay (including the mortgage payments) is $1,900 – $2,138 per month. Take a $400 per
month car payment out, $400 per month in credit card payments and $400 out for other payments
and you are left with a maximum mortgage payment of $700 – $1,118 which equates to a house worth
$138,000 – $221,000. The current median home price in Southern California is about $270,000 which
means prices still have to come down in order for people to qualify. The professional flippers I know
are finding it is taking an average of 2.5 buyers to sell their home at market value due to these financing
issues. On top of the housing in California, the state is broke and jobs are leaving the state due to high
taxes and an unfriendly business environment. You draw your own solution about California.

Young high school graduates, who represent the bulk of the American work force, have an average per
capita income of $25,000, a number that has decreased steadily since the 1970s. It should also be noted
that since the year 2000, college graduate’s wages for both men and women between the ages of 23
and 29 has moved consistently lower. In order to be competitive in this current job market, a college
education is necessary, if not essential, though students who take on a vast amount of debt to attend a
university are finding little return on investment upon graduation due to the development of a massive
higher education bubble and the lack of available jobs. Statistics from the government itself (from the
January 2012 Monthly Labor Review) indicate that the fasting growing occupations are personal care
aides, and home health aides, both of which have average per capita wages of around $25,000 on the
high end. Biomedical engineers are third on this list of fastest growing fields, however the percentage
basis points of jobs added is 9,700 projected over the next decade, is small compared to the figure for
personal care aides and home health aides–607,000 and 706,000, respectively.

So where exactly is this recovery happening? Very few Americans actually derive wealth from the stock
market, and most of their net worth is tied up in real estate with housing prices now at a definite low.
Many companies have taken to cutting wages and moving overseas. Birthrates have been on the decline
and young graduates are moving back in with their parents. Additionally some 46,000,000 Americans
receive a monthly charge to their debit card for food assistance. Granted that personal care aides and
home health aides cannot be outsourced, what we are witnessing is the gradual, and perhaps eventual
disappearance of the American middle class, soon to be replaced by an entrenched banking oligarchy
run by crony capitalists.

It is extremely important to take control of your financial future now, than it has ever been before. As
the middle class gets squeezed it’s going to be even more important to focus on personal finances and
monthly household budgets in order to get by. Your financial well-being begins with your personal
financial statement and monthly budget. Only after you have that knowledge can you gain true financial
freedom and develop a plan to attain it.

SLC company president, Joe Vranich observed the “top ten reasons companies are leaving California” as:

1 ) Poor ranking surveys
2 ) More adversarial towards business
3 ) Uncontrollable public spending
4 ) Unfriendly business climate
5 ) Probably savings elsewhere
6 ) More expensive business locations
7 ) Unfriendly legal environment for business
8 ) Worst regulatory burden
9 ) Severe tax treatment
10 ) Unprecedented energy costs.

He further states that Los Angeles is considered the worst city to start a business, in the worst state in the nation. Outside of Los Angeles county, businesses can save nearly 20% of costs, and leaving for the state of Texas can save 40% of costs, which explains why California lost 120,000 jobs last year and Texas gained upwards of the same figure (about 130,000). Governor Brown’s initial solution to the state’s crumbling tax revenue and disintegrating economy was to place a $6 billion tax increase on the November ballot to support K-12 public schools. Though he also promised only temporary raises on personal income tax rates by 25% for the wealthy, recent statewide polls showing support for the measure to have fallen from 72% to 52% since January have convinced him to compromise. His Plan B features half his proposed sales-tax increase and still considerably higher taxes on the rich. It also adds another 1 percent for single filers earning $250,000 per year and an extra 3 percent for families making more than $1 million. It would appear that since all the businesses are gone, the next plausible target is the state’s golden geese. At this rate all of California’s tax dollars will be driven out. New state slogan: get out while you still can.

Think always of working to perpetuate and not simply to preserve. This means having
your money continue to work for you, such that perhaps even your heirs will have
residual wealth to use towards their own retirement. Investing in real estate allows you
to obtain this goal because it produces above-inflationary returns and can grow your
wealth in multiple ways.

First, real estate produces positive cash flow after monthly expenses. After the
mortgage payment, property taxes, insurance, repairs, and property management, you
can still make 7% – 12% and more on your down payment. Using a loan from a bank or
private financing institution to leverage your investment can help you see even higher
returns on your money.

Second, depreciation benefits obtained from owning real estate can significantly reduce
the amount of taxes owed on the rental income earned. Reducing taxes is imperative to
wealth building since it is your biggest expense in life.

Third, properties purchased below market value come with built in equity, allowing for
immediate profit. No stock allows for this same benefit, which comes in addition to
possible future appreciation of the propertyʼs market value.

Fourth, if you purchase a property using a bank and put 20% – 25% down on the
investment, you can pay down the loan every year, giving you one more profit center
when investing in real estate.

The fifth, and most important advantage of investing in real estate is that you have
control over your investment where other types often delegate it to another outside
party. Buying a property and buying correctly puts the power of controlling cash flow in
your hands. Furthermore, you have control over your exit strategy and you have
collateral–in the form of a hard asset–for your investment.

With all of these benefits of investing in real estate, itʼs a no-brainer that you should
include real estate as a large part of your retirement portfolio.

Since May of 2010, prices in overpriced counties of Orange County and Los Angeles are both down $45,000. San Diego dropped by $15,000 and Ventura by $25,000. Prices in Riverside County and San Bernadino are shown to have fallen by $23,000 and $10,000, respectively. Looking back a near decade ago in January of 2001, San Bernadino is up only 7 percent and Riverside is up 13 percent, as compared to increases of nearly 30, 46, and 50 percent in San Diego, Orange, and Los Angeles counties.

When looking at the rise and fall for Riverside city, which experienced a crash of nearly 60 percent from its inflated peak of $400,000, a more accurate picture of the bubble bursting is depicted. Viewed objectively as the removal of the toxic mortgages, not much has occurred in the region to justify those peak prices. Many investors are snapping up the properties out in Riverside and San Bernadino, with the typical all cash purchases of $200,000. And there is no shortage of homes since investors last month purchased nearly 30 percent of all Southern California homes with cash. Looking at more figures to justify the affordability of homes in these two counties, the California Association of Realtors also noted that households needed a minimum of $36,250 in annual income to qualify to buy the median priced existing single family home for $172,090.

With so many investors looking to purchase in the Inland Empire because of low prices, we are faced with the reality that the economy in this region is struggling. Shadow inventory data for both counties reveals some 16,000 distressed properties in Riverside county, and some 37,000 in San Bernadino, not counting the year end filings that have not yet entered the market. These numbers tower over those of MLS listed properties, exemplifying that not even low prices can revive a stagnant market. Another reason for lack of pickup of cheap homes in these areas is high unemployment rates, which essentially should be cause to lower prices below the 2001 point, as unemployment then was only in the natural 5 percent range; three times lower than at present. It would appear then, that current record low mortgage rates are simply trying to cover up the fact that the economy, at least in some areas, is still hurting.

California continues to have an outrageous amount of distressed properties, with numbers for NOD’s filed in the third quarter of last year the highest they have been since Q3 of 2010. Much of this is due to the banks moving forward on foreclosure activity, while also stemming from the banks moving forward on their accumulation of a shadow inventory. Short sale figures have steadily been growing over the last year. Foreclosure re-sales, at 33.8 percent in September 2011, have actually fallen for the second quarter in a row. Even still, the increase in NOD’s previously noted assures that we will have more distressed sales to come, most likely sometime in spring of 2012. Additionally, the foreclosure process can take up at least to six additional months to sell a property. Once the NOD count starts getting into the 20,000 filings per quarter range, it is likely the market will start to level out.

According to the Federal Housing Finance Agency, we have no sign of home prices going up, and despite the false perceptions otherwise, most homeowners still have a mortgage attached to their home. And yet, reluctant sellers still expect peak prices for their sale even though the bubble has passed. Further indicated by the fact that the typical mortgage payment (helped along by artificially low rates) for the end of the year in the state was around $964, people can only afford so much home. In truth, a large part of cash sales are going to investors seeking out cash flow or investment properties. So let’s face it California–a 12 percent stated unemployment rate, real unemployment rate above 20 percent, a $700 million budget shortfall with likely tax hikes to follow–things are not at all looking good for home values.

Mathew Owens, CPA

Since the housing bubble burst nearly $7 trillion in real estate wealth has evaporated, representing a fall of close to 30 percent from the peak in equity. Part of this is again, due to the fact that many home buyers can only afford lower priced homes. Additionally, nearly 3 million foreclosures have concluded, not counting the shadow inventory of nearly 4 to 6 million properties created by the banks. With the government and the banks working, seemingly in a concerted effort to keep prices artificially high, there seems to be little we can do to avoid the state of housing welfare that currently continues to stagnate our economy. Instead the government should be focusing on fostering an environment to create jobs, taking all hands away from the housing market, though as it stands; it seems the only way this will occur is if their banking overlords order them to do so.  We do not need another bail out for the housing market; we need a healthy environment for small business to thrive which in turn creates jobs.

Mathew Owens, CPA

So those same books will go on to tell you how bankruptcy is a trifling concept to the Federal Government, subheadings: Refinancing and Taxation. Our entire system endlessly fuels the fire of debt with more debt as individuals finance everything from a college education, to homes, and automobiles.

Following the example set by Uncle Sam, people are virtually enslaving themselves with the amount of debt they possess, the difference being that we, as individuals, have no one to tax or no one to unload our debt burden on. The banking system, on the other hand, has nearly unlimited access to the Federal Reserve, where the sign out front reads “Dump debt here.”

Looking at the student loan market the average debt upon graduation is roughly $24,000, with median pay leveling out at about $26,250, assuming individuals are able to get jobs right out of college. Forget Brave New World, we’re in dystopia now.

In a system where everything runs on enormous levels of debt, the very idea of saving has become a sophistry. If you can’t possibly save enough for a car or an education, you get a loan instead. In the same way that toxic loans to the housing market corrupted the industry and drove prices sky high, similar parallels are occurring in the student loan and higher education market. The enormously wealthy few are becoming richer with the financialization of our country, and the more people who wake up to this reality the better equipped we will be as a nation of sovereign individuals to stop the cycle and start generating wealth for ourselves, not others.

Debt is a huge burden on our society and most of the world does not realize that it is crippling to their financial well-being.  It will literally enslave you into a never ending cycle of poverty unless action is taken to solve the fundamental financial problems.  It is time to take action with your financial situation and education on debt, money and your own financial situation.  It’s more important than ever with the insurmountable financial issues facing our world today.