In his new book being released this month, "Sell Now! The End of the Housing Bubble," John R. Talbott is admittedly, an angry, bitter man, and he doesn't mind telling you so.
The third line of the Author's Note begins, "At times, I allowed my anger and bitterness to enter my writing style."
No kidding! He's not only angry, but loud and bullying too, if a recent interview of him on my radio show -- where I was first introduced to the book, and he was alternately evasive and condescending, launching into long, self-serving tirades and dodging questions posed over and over again -- was any indication.
And he's pretty much mad at everybody that he perceives might be to blame for his predicament. He sites Federal Reserve Chairman Alan Greenspan, Fannie Mae, Freddie Mac, some undefined institution that he refers to over and over again as banks, an "incestuous real estate industry," mortgage qualifying formulas, consumer's psychological need for status, and an indifferent upper-class that is dividing America.
Though probably misdirected, his anger is justified. By his own admission he sold his own home well before the more recent dramatic gains and now finds himself wishing against the forces of undersupply that prices might return to pre-1997 levels so he can buy back in. We'll see about that.
Talbott has been writing about the bubble since 2003 when he wrote, "The Coming Crash in the Housing Market."
Rather than accepting the reality that most people laughed him off and continue to own their homes, he is back to say, "I don't think the message of the first book was completely absorbed."
Talbott is a conspiracy theorist and he says so in the last lines of a chapter entitled Can You Say "Conspiracy?" "Everyone will certainly comprehend then that American homeowners took a beating during a housing crash that was the result of an unsustainable boom orchestrated and propped up by their government and big business … ."
In a chapter entitled, "The Real Culprit-Overly Aggressive Banks," he says, "… a very simple formula that bankers utilize to help them determine lending amounts may be what is causing the entire worldwide appreciation in real estate prices."
Or, is it homebuyers? He's not certain, so he devoted a chapter to them as well, dismissing high home prices as being nothing more than the manifestation of peoples' need for ego reinforcement. In Chapter 9, The Desire for Status, he states, "My answer is that individuals' quest for status might explain it all."
He further suggests, "… if more people were willing to scrape by and live in a modest $500,000 home instead of insisting on a $1 million home, they would free up $500,000 to help the poor, cure the sick, care for the elderly, house the homeless, educate the masses, and feed the starving."
I smell a socialist masquerading as an economist. His relevant qualification for writing the book seems to be that he was, according to the books jacket, "… a visiting scholar at UCLA's Anderson School of Management." What's the difference between that and attending a class there?
He doesn't claim to be a real estate expert and it is apparent in his theory that appraisers are the setters of value.
Rather than failing to absorb his earlier message, there are other more plausible explanations for why American's continue to buy and trade up in the only property of any real value. You have to live somewhere and owning is psychologically more rewarding than renting someone else's property. No matter how little of someone else's mortgage payment you are making you want it to be going at least in part to something that is yours.
Another reason that Americans ignored his advice and kept their homes is because they like them. Talbott views homes purely as shelter. But his lack of experience in the real estate business obscures one important distinction; we are not so much a nation of home owners as we are a nation of families. Many family homes have never been on the market and never will. They are places where children are nurtured, protected, play, make friends, attend school and make memories that are the essence of life. Beloved family pets are buried in back yards near anniversary rose bushes. Most would not willingly pull his family out of that to go and rent someone else's house.
Many of us would spend whatever we had to provide the best housing available to rear our children and gather with our families. Sure, we could all get by in a Mongolian Yurt, but why should we if we have better options.
We see no better use for our money. If the alternative is hunkering down in a 300 square foot apartment waiting and hoping for a global economic implosion, I'd rather be chillin' in a pimped out crib until the meltdown. Besides, who is going to foreclose on my house if it's worthless and the banks are out of business?
Seems to me that under those circumstances, real estate would be the only thing left of any value. People need a place to live and they'd have to barter their work in exchange for food and shelter.
Because real estate has utility, that will remain whether the monetary system collapses or not, and on a planet with a growing population, your own space might be the ultimate luxury.
Betting on a complete global economic meltdown and winning is a bit of a pyrrhic victory. If the banks collapse, money will be worthless. Money isn't a thing that can be horded; it's a contract that ceases to exist when chaos reigns, the banks collapse.
My experience tells me that what makes homeownership a good long term bet is what makes real estate a good long-term investment. Leverage, utility, and tax free profits.
