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.

Monday, December 19, 2011

Sentiment During Market Cycles

The following flow chart provides a great visual on investor sentiment during the different stages of a market cycle.  From my perspective on where different investment class are today I would say that:

- Gold is in the optimism phase

- Housing is in the desperation phase

- US treasury bonds are in the euphoria stage (maximum danger - peak of bubble)

There is not a market today I feel is at the maximum level of pessimism (point of maximum financial opportunity), such as stocks were in 1981, real estate in 1991, or gold in 2001.  While we still have the final few innings of the gold bull market, including the final euphoria parabolic move higher (point of maximum financial risk), I think real estate is the closest market to being the next great undervalued buying opportunity after we experience the final leg of price declines.

New Requests For Santa

New Housing Strategy: Home Demolition

Good segment last night on 60 minutes discussing the housing market, and a new strategy in Cleveland for abandoned homes: demolition.  As homes go into foreclosure the bank does not take the time or money to board up the homes, allowing vandals to enter and strip everything of value.

It interviews many of the residents in the area that continue to pay the monthly mortgage on the homes that are drastically underwater.  There are 11 million of these unfortunate Americans who now only send the payments in due to principle.  Hopefully no one tells them that they can now live payment free in their home for close to 2 full years if they stop sending the monthly mortgage payment to our too big to fail banks.

Sunday, December 18, 2011

Ron Paul With Jay Leno

The last glimmer of hope for the few Americans (ironically the youth which he discusses) who understand there is continuous harm being inflicted to their country under the surface, those that can see the termites eating away at the foundation, spoke with Jay Leno this week.