Wednesday, December 21, 2011

John Talbott: "It Is Time To Buy A Home"

Back in 2004, as real estate prices were soaring higher by the hour and making millionaires out of everyday home owners, I began reading books on investing in real estate.  I remember going to the bookstore and there would be about 5 full sections in the business area dedicated to real estate.  They would put all "other" business/marketing/sales books into the last section.

On the shelf at the time there were only two books (out of about 700) that were warning about trouble coming for home owners.  They were:

1. "How to Profit from the Coming Real Estate Bust: Money-Making Strategies for the End of the Housing Bubble" by John Rubino (2003) 

2. "The Coming Crash in the Housing Market: 10 Things You Can Do Now to Protect Your Most Valuable Investment" by John Talbott (2003)

Both authors had a clear understanding of why home prices had risen to unsustainable levels (easy credit) and described ways to profit off the fall (shorting home builders and Fannie/Freddie).  It is worth noting that both authors were about 2 years early and were ridiculed at the time; similar to those warning about dot com stocks in 1998.

Talbott then wrote another book in 2006 titled "Sell Now! The End Of The Housing Bubble."

The reason why I am providing this brief history is that Talbott wrote an article in the Huffington Post this week titled "Homes - Buy Now." I was shocked when I read it.

He begins the article by stating:

"I have been waiting for more than five years to offer this advice. It is now time in most cities across the country to buy a new home or refinance your existing home with thirty-year fixed rate mortgage debt."

He then goes on to provide his reasons why this is the time to buy.

As I discussed yesterday looking at where we are in the market cycle, I believe that we are far closer to the end of the bear market in real estate than the beginning.  However, for reasons I have reviewed in detail here on this site, I believe we have one final leg down before the all clear flag to purchase is waived.  I emailed Talbott this morning to discuss his green light to buy.  I said:

I recently read your article in the Huffington Post; "Homes - Buy Now!", and I had a very quick question for you. I agree with everything you said in your article, and your outlook on inflation and the dollar, but if inflation begins to rise taking all interest rates higher with it (mortgage yields will track higher with treasury yields) will that not impact the purchasing power of potential home buyers and subsequently impact the price they can afford to pay?

John's Response:

Yes, very astute comment, but, academics have found that home prices are one of the few assets that do well in an inflation.  Imagine not a lot of new buyers, but the $30 trillion of stock in existing homes that should adjust upward if inflation is caused by printing new money.

I wanted to provide this as an alternative view from someone out there who had the courage to shout danger when others were buying like lemmings.

I disagree, and I will discuss why in far greater detail in my 2012 outlook for the housing market released at the beginning of the year.  Stay tuned.

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