The Coming Crash in the Housing Market : 10 Things You Can Do Now to Protect Your Most Valuable Investment: John R. Talbott: 9780071422208: Amazon.com: Books

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John R. Talbott

The Coming Crash in the Housing Market : 10 Things You Can Do Now to Protect Your Most Valuable Investment Paperback – April 28, 2003

by John R. Talbott (Author)

3.7 35 ratings

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Today's real estate market is a house of cards--learn what homeowners can do to prepare for its pending collapse

Soaring home prices and 50-year low interest rates have lulled homebuyers into a false sense of security. But plummeting consumer confidence and record-high personal debt threaten to blindside overextended homeowners and real estate investors.

The Coming Crash in the Housing Marketshows homeowners how to avoid owing more to lenders than their houses are worth--known as an "underwater" mortgage--and reveals commonsense steps for protecting one's assets when the bottom falls out.

In this compelling, well-documented book, renowned economic consultant John Talbot tells current and potential homeowners how to survive and thrive in tomorrow's world of slashed home values. He presents:

Convincing reasons why the housing market will likely crash within two years
Startling similarities between this and previous economic disasters

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Print length

204 pages
Language

English
Publisher

McGraw-Hill Education
Publication date

April 28, 2003
Dimensions

6 x 0.63 x 8.9 inches
ISBN-10

007142220X
ISBN-13

978-0071422208
See all details

John R. Talbott
19
Paperback
$17.69
$15.53 shipping

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3.7 out of 5

35 global ratings

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Too bad it is dated and won't do anyone much good ...

Reviewed in the United States on June 2, 2018

Well he got it right didn't he? Too bad it is dated and won't do anyone much good at this time.

Thought Provoking

Reviewed in the United States on July 23, 2004

Verified Purchase

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.

66 people found this helpful

well, it didn't crash. another book betting on ...

Reviewed in the United States on March 22, 2016

Verified Purchase

well, it didn't crash. another book betting on the come.

WOW! This guy DID know then what we all know now

Reviewed in the United States on March 2, 2010

I am writing this review in March 2010. I just stumbled across this book and started reading it. With just some changes in the sentences to PAST tense, this book would read like a HISTORY of the housing and mortgage collapse, not a prediction several years earlier. It is spooky to go back and read through some of the original reviews from 2003. IN fact the reviews for this book read like a timeline of the housing and mortgage collapse.

I think many of the ideas STILL have value today even with the current issues. I find this a great read just because it is different from many articles and books today that are using hindsight. If all the "experts" today KNEW back then that a collapse was coming (which they claim) then why were they hit so hard by it too? I think the biggest value of this book today, SEVEN years after it came out is its realistic look at what was going on back then that caused today's problems. And it may very well come in useful again down the road. While hindsight today is easily 20/20, this book come in from a totally different approach and could be of use again in the future when 2003 conditions start recurring.

At the very least, it is a fun read by somebody who DID know then what we all know now. This book is much different than the usual doom and gloom books that just HAPPEN to come out before some financial disaster. This book hit it right because it was an insightful and accurate analysis

4 people found this helpful

Was it genius or just luck? Definitely luck!

Reviewed in the United States on July 2, 2008

Verified Purchase

Every year bunch of pundits write books about the next market crash. Eventually, half of them are right. But, they are often just Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets . Talbott predicted the housing downturn back in 2002, three years before it occurred. Was it genius or just dumb luck? After studying his book, I conclude it was luck. Read on to find out why.

Talbott develops home valuation metrics that are methodologically flawed. He compares the Debt/Cash flow multiple of sound LBO transactions (around 7 times) vs the ones he estimates for home borrowers (around 14 times). But, he omits that the interest rates on the junk bonds financing LBOs were twice as high as mortgage rates. The resulting debt service burden on the LBO is higher than the one on the mortgage borrower. He similarly looks at Price/Rent multiplier and Price per square foot of homes vs apartment buildings. Those are apples and oranges comparisons. It is like stating Google is overpriced because its P/E is higher than PG&E. But, Google P/E will always be much higher than PG&E because Google is a growth company meanwhile PG&E is a mature regulated utility. Similarly, rents are capped and regulated meanwhile home prices are not. The quality per square foot between homes and apartments are different. The privacy, lifestyle, amenities, amount of land are also different. The resulting demand and supply curves are very different too. Renters have much lower income than homeowners. Also, he again forgets the impact of interest rates. In table 6.4 he compares the price per square foot of homes in September 2002 vs apartments in January 2000. During this near three year period interest rates had dropped by 120 basis points. This alone should have caused apartment building prices to rise by 15%. Thus, his related price multiple of homes vs apartment is overstated. On table 6.3 he looks at home price/personal income multiple. Again, remember the Google vs PG&E analogy. There are fundamental reasons why Google has a higher P/E than PG&E. Similarly, there are many reasons why San Diego has a higher P/I multiple than Gary, Indiana. Climate, environment, job opportunities are big drivers of P/I multiples for cities just like earnings growth and business opportunities are for P/E of stocks.

Talbott also shows much data that actually contradicts his position that a housing bubble had started. He shows a graph of declining crime rates that renders communities more attractive and should support higher home prices. His graphs showing housing prices to income multiple and to cash flow multiple showed that such valuations were a lot lower than back in the early 80s. And, they did not crash back then. Figure 3.2 shows that LTV ratios had reverted back to the mean around 74% by 2002. Similarly, the % of homebuyers with LTV ratios of 90% or more in 2002 was far lower than in 1996. On figure 3.5 he shows that the coverage of interest expense by average worker's cash flow steadily increased over the twenty year period from 1982 to 2002. All those facts did not support his bubble hypothesis.

There is a good reason why Talbott had to be lucky in his prediction: nothing in the data at the time suggested the onset of a housing bubble. He tortured the data every which way to support his arguments. But, as investigated above he failed.

Talbott also makes a lot of conceptual mistakes. He confuses cause and effect when he states that women had to enter the workforce so households could afford homes. Instead, women entering the workforce boosted household income which caused home prices to rise. Later he states "As he [Reagan] adopted a policy of borrowing to fund deficits, rather than printing money, inflation came under control." But, running Budget Deficit would certainly not curb inflation. Meanwhile, printing money refers to the growth of the money supply that is not controlled by the President but by the Federal Reserve. During the Reagan years inflation came down not because he ran large Budget Deficits, but because Paul Volcker, Federal Reserve Chairman, restricted the growth of the money supply growth. On the graph of figure 3.1 he thinks he is showing how households are getting more leveraged by showing their rising debt over time. But, this graph is really meaningless without considering their rising assets over the same period. Hopefully his handle of plain economics will have improved in his upcoming book Obamanomics: How Bottom-Up Economic Prosperity Will Replace Trickle-Down Economics .

Talbott also cherry picks a lot of short-term trends that are meaningless. He shows a graph of stock returns during the dot.com crash (2000-2002) and is alarmed noting that home prices did increase during the same period. Later he shows a similar graph over a short term period showing how commercial real estate prices decreased meanwhile home prices increased. But, all those graphs are showing is that stocks, commercial real estate, and residential estates are separate asset classes with somewhat uncorrelated returns. Their divergence over short period of times is to be expected. This in itself did not mean home prices were overvalued at the time.

In the second section of the book his recommendations on protecting personal wealth range from the mundane to the ludicrous. He advices borrowers to reduce their leverage, carry adequate insurance, and diversify their portfolio. That's common sense. Then he moves onto the ludicrous by recommending you sell your house and rent instead, or move to a cheaper home market area, or even consider bankruptcy filing as a preempting strike against your creditors.

If you want to better understand home price differentiation between cities I strongly recommend Richard Florida Who's Your City?: How the Creative Economy Is Making Where to Live the Most Important Decision of Your Life . On the housing and credit crisis I recommend Charles Morris The Trillion Dollar Meltdown: Easy Money, High Rollers, and the Great Credit Crash .

4 people found this helpful

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