by John R. Talbott
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Product Description
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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Average Customer Review:
0 of 0 people found the following review helpful:
 Hindsight is 50/50, 2008-11-25
I purchased and read this book back in 2003. Talbott was right. You could not have asked for a more accurate guide book on how to prepare for and then to navigate this disastrous economic crash. It played out step by step as he described it. I think the only thing he missed was the actual timing.
I actually took some of his advice and applied some of his ideas and it saved me from the disaster that many millions of homeowners have made.
I applied # 1, 2, 3, 4, 5, 6 and 10. I sold my properties in California for a large profit and purchased property in another state. This was the best action to take.
Talbott's 10 actions to avoid this mess.
1. Decrease you exposure to residential real estate.
2. Move from a high priced area to a lower priced area.
3. Manage your debt leverage better.
4. Hedge your exposure to residential real estate
5. Plan now in case of major transition event.
6. Examine other contingency plans.
7. Maintain adequate insurance.
8. Understand Bankruptcy protections.
9. Become more civicly involved.
10. Reassess your life priorities.
2 of 2 people found the following review helpful:
A Belated Thank You, 2008-09-30
In 2003, when I was looking to buy a house and realtors were trying to get me to agree to a higher price than I thought I could afford, I became bewildered and confused by the strange situation in which I was prequalified to spend a quarter of a million dollars, and yet that was only enough to buy a house that was likely to flood every year when the nearby river rose. I finally decided I needed more information, so I went to the book store and scoured the shelves and shelves of books on how to buy a house. There, amid all the titles like "Flipping Properties," I found John Talbott's book. I was halfway through it before I looked up and realized I had probably better pay for it and take it home.
This book changed the course of my life. If I had not read it, I might well have been among the many people who are now foreclosing on their homes and losing everything they have. I would certainly have still been a wage slave, working ridiculous hours to try to pay for a home I could not afford, and which was not worth what I'd paid.
Thanks to The Coming Crash in the Housing Market, I not only did not buy a house at the worst possible time, but actually convinced my mother to sell her home after retiring and move to a more affordable town. She sold JUST IN TIME.
So I just want to say Thank you, Mr. Talbott, for saving my family. Your book was probably the best investment I ever made.
1 of 1 people found the following review helpful:
Saved me money, 2008-09-29
I have read this book when I was planning to buy a house in 2003. After I read it, I did not, which now saved me a lot of money. Good analysis, convincing examples. Thanks John.
1 of 3 people found the following review helpful:
 Was it genius or just luck? Definitely luck!, 2008-07-02
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.
7 of 7 people found the following review helpful:
He was Right., 2008-03-15
You guys were all wrong.
He was right!
Read this book and profit tomorrow.
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