Customer Reviews

The Coming Crash in the Housing Market : 10 Things You Can Do Now to Protect Your Most Valuable Investment

5 star:		(23)
4 star:		(16)
3 star:		(4)
2 star:		(7)
1 star:		(12)

 

 

Mr. Talbott is very close to the bull's eye with his book. I am a real estate broker and appraiser who has been appraising residential real estate for nearly ten years. And, from personal experience I can tell you that the vast majority of residential real estate is in fact over valued. In the three markets I have worked in, Richmond,VA; Hampton Roads,VA; and Columbus, GA - Phenix City, AL; most appraisers are pressured by loan officers and brokers to hit the numbers or else their out of business. Please realize that loan officers and brokers need the sale/loan to close before they earn their commissions. Why would they hire an appraiser who does not make "the numbers." This collusion is further exacerbated by the government through subsidies of banks, FannieMae, FreddieMac, and through other mortgage insurances and government garantees. In my view, as long as "lender select," i.e., the lenders are allowed to select appraisers there will be pressure on appraisers to hit the numbers. Now, some may say the appraisers are interpreting the market when making their appraisals, this may be true. But, what if the market their are interpreting is already inflated? Would not their numbers be inflated? Mr. Talbott's section titled "Do Banks and Appraisers Act Rationally?" makes an excellent case. Will the market crash? I don't know, no one knows for sure, but if you leave with anything from "The Coming Crash..." BUY SMART!!! Mr. Talbott's book is a big help.

One of the most interesting aspects of the book was that it answered many of my nagging questions that I had about home buying and mortgages. This includes issues that I see every day with my family and co-workers.

I consistently wondered how a person could make $30,000 per year could qualify for a mortgage of $175,000. Many receive mortgages with little or no money down. How can they have a mortgage payment of $1200.00 per month and cope? How did a mortgage banker determine that they were credit-worthy?

How could so many single people afford a home? Every single woman and man in my office (20 people or so) is currently buying his or her own home. Even married couples seen to spend an ever-increasing amount of their salaries to support a mortgage.

How does anyone in this day and age determine future employment or employability? Globalization and the quest for lower labor costs have put pressure on nearly all jobs, even in the field of education, where I work.

If people are spending 40- 50% of their salary on housing, how will they fund other needs, such as saving for retirement and education for their children?

Both my parents and in-laws live on a fixed income with social security and small work pensions. I know that there is no way that they could afford to carry a mortgage after retirement. Property taxes, insurance and maintenance take an increasing share of their fixed income.

Now, I know that they are all pretty much broke, they just don't know if yet.

The author made some excellent points. I have read some of the same things in several recent magazine articles, but he went into greater detail and was very convincing.

When I first started reading this book in the book store, the title made me think it was one more sensational doom and gloom type book on the economy that was designed to sell books without giving the reader any accurate information. That was not the case. The author seems to have a firm grounding in economic principles. He makes his points, while explaining that there are always uncertainties in any market.

If you are thinking about buying a house or investing in rental real estate I think you should read this book first. It convinced me that I should wait another year before buying a larger house.

As an investment banker who buys blocks of mortgages around America this is an important subject as to whether the value of my collateral will deteriorate. Talbott does a good job presenting his case that there is a relationship between household income and housing prices. His point is well taken that low interest rates have fueled this boom and that when rates rise, housing prices will have to come down. So, from the perspective of his thesis, I found this to be well written and well documented even if I agree there is a risk but do not believe that it will be significant.

For example, he quotes the very low average household net worth?s of households. Households 45 to 54 have less than $200,000 mean net worth. But when median net worth is taken into account for the same group, the number is closer to $700,000. Doesn't this support current home prices while at the same time highlighting a bigger issue, the widening diversity of haves and have-nots in America? Also, San Diego is presented as the least affordable housing, $379,000 average home vs. $60,000 average income. That's a great fact but does it take into account the large military population that is generally lowly paid but highly transient that may be more renter than buyer in that area? I theorize that these many people are lowering average household income while substantially not trying to purchase homes.

This is a complex issue I have purchased mortgages and real estate around America through the Texas, East Coast and California busts. It is worthwhile to discuss that that risk is higher now than in the past 14 years. But I'm not convinced I see the current catalyst for a bust.

DISCLOSURE: I spoke recently at a banking conference on the likelihood of a home pricing crash. The speech was well received and there are many that worry of this issue. I quoted Talbott and gave him credit for his opinion. He provided great insight and material for a contrarian view on home prices.

As a potential home-buyer in the overheated Los Angeles real estate market, I decided to give up a day of looking at hardwood floors, granite countertops and the like and entertain Talbott's arguments. Much of the housing panic Talbott describes in charts can be known intuitively: spend some time at open houses, where potential buyers crowd into tiny bedrooms; be one of a dozen to bid (tens of thousands over asking price) on a home; watch homes go for $100,000 over listing price. At the higher end, Talbott's early predictions are also correct: homes priced 1.5 million and more stay on the market for a long time. As many have stated, the housing bubble bursts from the top down, and this may be a sign of the burst.

Although I tend to agree with Talbott's arguments, I cannot give this book a higher rating. The problem is that much of the evidence and charts Talbot marshals to support his thesis are flawed or misleading. For example, Talbott emphasizes the fact that in most markets the price per square foot of personal homes exceeds the price per square foot of apartment buildings. To Talbott, this indicates that the homes are overpriced. To me, this is comparing apples and oranges. An apartment building is essentially a small business. In many cities the rents a landlord can obtain are subject to rent control, thus capping the profits from the business. In those circumstances, a building will sell for less. Additionally, in those cities where rent control is in effect, fewer apartment buildings are constructed. Thus, the housing stock of apartment buildings is older, on average, than the stock of personal homes and worth less. Finally, Talbott does not account for the fact that in tight housing markets, condos are leased out and add to the rental supply. These condos, when sold, figure in the price statistics of "single family homes," but they are really rental units.

Likewise, Talbott's claim that the increase of women in the work force means that more home purchases rely on two incomes may be true, but the chart he produces doesn't prove it. Sure, more women work. But there are also more single women, buying houses and condos with only one income, than there were in 1960. And the chart Talbott prints on page 30, which shows the percentage of MEN in the workforce declining from 90% in 1960 to 78% in 1999 does not support his analysis. Presumably, at least some of those men are in one-income families, where the mortgage is paid by the wife.

Talbott is correct in pointing out that many Americans are over-leveraged and even a small decline in housing prices could cause many (particularly sub-prime borrowers) to seek bankruptcy protection. Where Talbott's work shines is in its discussion of the real problems confronting Fannie Mae, Freddie Mac and the private mortgage insurers. These issues are of serious concern and could cause significant problems should housing prices tank.

Overall, I think Talbott has made his case. A work of this nature, however, should be more rigorous in its analysis and presentation.

If you are reading this review, I owe you 2 things about me in the first place. First, I live in San Francisco Bay Area (an extremely expensive housing market) and second, I have felt that the housing market is in trouble for awhile so I was pre-disposed towards the author's point of view.

That being said, the author knows his subject matter. I work at an investment company that specializes in money management via quantitative modeling (in the technology group). As such, companies such as mine have an enormous influence on this market as an 'end consumer' of the individual mortgages taken out on homes. The author has done an extremely good job at simplifying the staggerly complex world of fixed income instruments to find the drivers of market forces that influence the world as the individual home owner sees it.
The trend lines and their causes that the author has built explained a lot to me.

Written in the end of the year, 2002, the discussion of forces on the companies participating in this vast money pool and how changes in those forces will effect the companies and therefore all of us is proving extremely accurate in 2003. Rates have dived to rare lows with unprecedented speed and now are rising with the same level of velocity - the velocity and depths of the dive driven in large part to the hedging strategies (or lack thereof) of investment companies. The heads of Fannie Mae and Fannie MAC are in trouble for fiddling with their numbers to drop earnings since that is what Wall Street is looking for (and therefore their bonuses are tied to those expectations) and other bad things have all started to rear their heads since this book was written (as the author predicted).

Two final thoughts as recommendations. One, the housing market, prices etc... tend to be pretty 'sticky' - so this book should hold is value to you for several years past publication date. The other, is a concept that the author introduces and will give you an idea of where the author is coming from. If you thought houses were priced correctly (or even were expensive) in your area 5 years ago and today prices are significantly higher - - does that mean that all of a sudden everyone woke up and realized how badly they had misunderstood the market and value 5 years ago? Everything was underpriced then and it is correctly priced now, or is something fishy in Denmark instead??

As an educated observer of the pros from the inside - this book is highly recommended

cheers! and good luck over the next 10 years

Before purchasing this book, I read most reviews on this board, and found very polarized ratings about it. This book surely upsets millions of people, who hold strong denials that the housing market is over valued because the facts and scary scenarios presented by the author are against their wishful thinkings that real estate investments nowadays are more tangible and secure than "intangible" investments. I respect Talbott's courage to speak up!

Valuations on Real Estate in general are much less developed than valuations on equity, while equity valuations are arguable science themselves. Therefore I think Talbott did a great job in presenting his arguments from as many as possible angles by using ratios and charts. It would be better if he could have used data that dated further back in history, but I doubt there are enough records in this area. Simple based on records starting from 1970's, the fact has been clear: the housing market madness in the past decades has reached an unsustainable level providing business practices of the industry, dark sites of Fannie Mae and Freddie Mac, and evidently general public's mentality on Real Estate.

Housing market is extremely local, so I think the author did a decent job in printing a bigger picture since commenting on local markets and predicting timeframe is technically infeasible. It's your job to make judgment and take actions once facts are presented. The author virtually tells us:
1) There are structural problems in US housing market (yes, we do!)
2) Being over stretched in debt financing normally ends in crash (Isn't this true!)
3) What goes up comes down (Law of nature, isn't it?)
4) When everyone is eager to get into something, be watchful (Have we heard of "herd mentality"? How did it end?)

It's a great book to understand some dynamics of US housing market. Highly recommended!

I have sold two condos over the last five years. I have been trying to decide whether I should rent or buy again. Having read books and articles from both sides, those who believe there is a housing bubble and those who believe prices will level off but not decrease, I have concluded that both make good arguments but only time will tell. I could come up with arguments to rebut everything said in this book and I could come up with arguments to rebut those who don't believe a housing crash will occur.

Here are the main arguments in support of a bubble:
*Many people are choosing adjustable rate mortgages. The inevitable increase in interest rates will make mortgages unaffordable for many. Many people will choose to sell their homes, creating excess inventory and lower prices.
*Rental vacancies are at records highs. Rent vs. Buy calculations are most likely to favor renting, driving more people out of the housing market.
*There is a huge gap between monthly mortgages and rents. The wider this gap grows the more likely people will choose to rent rather than buy, driving down demand and therefore prices.
*Only 20 percent of families can afford a home in today's high priced market.

Here are the arguments against a bubble:
*While rates will rise in the next few years an improving economy will bring better jobs and pay raises. This means that most homeowners will be able to pay the higher costs of their ARM mortgages. Also, many people who have ARMs can currently afford to pay 30 year rates, but they choose not to, to save money. When they see that rates are rising they can always get in on a good 30 year deal.
*The main reason for the record high rental vacancies is the recession. Many individuals and families have moved back in with parents. An improving economy will drive many of these people into the rental market driving up rents.
*More people entering the rental markets will close the gap between the cost of renting and the cost of a mortgage.

*Based on salaries only 20 percent of families can afford a home. However, for those who currently own a home the high rates of appreciation provide them with huge downpayments if they want or need a new home. So when assets are considered a lot more than 20% of families can afford houses despite the high cost.

Talbott's book is an interesting read but no one can predict what will happen in the future. The author may be right and he may be wrong. We'll have to wait and see what happens. If you have a home and are wondering if you should sell or if you want a home and are not sure you should buy now I would say don't let Talbott's views sway you. Read more arguments and come to a conclusion based on what seems to be going on in your local housing market.

I found a brand new affordable townhouse and I have a large downpayment, so I have decided to go ahead and buy. Even if Talbott is right and the market crashes I can make my monthly payments, which is ultimately what matters. This will be my third purchase and buying sure beats renting.

This book did an excellent job of explaining how overinflated and fragile the current housing market is. I learned quite a bit about how the system works; particularly the sections pertaining to Fannie Mae and Freddie Mac. I think this book is a must read for anybody even remotely interested in real estate, especially first time buyers or anyone thinking of "moving up" right now.

Amazing how 30+ readers can take the same book and come to such differing conclusions.

* I have to say that overall the book provided some interesting insight and food for thought.

* Book TITLE was overly provacative. Above anything I think the author is simply saying you should run your numbers VERY closely before buying residential real estate.

* I laugh at those idiots who, in claiming the book's premise is false, do little more than stating the author is a LOSER and then go on to point out that since prices have continued to rise over the past six months a crash will not happen. That shred of evidence is then invoked to counter all the author's claims. Do these people really READ these books????