Book: The coming crash in the housing market, John R. Talbott - Luca Bolognese

Book: The coming crash in the housing market, John R. Talbott

Luca -

☕ 2 min. read

My wife and I are plan­ning to move some­where where you can walk to shops and restau­rants. We were think­ing about sell­ing or rent­ing our cur­rent sub­ur­bia home. So, as usual, I picked up a bunch of books from the lo­cal li­brary. This is one of them. Amazon re­views are here.


My opin­ion on the book

The au­thor did a good job of pro­vid­ing nu­meric ev­i­dence of the pos­si­bil­ity of a real es­tate bub­ble. What I did­n’t like is that he did­n’t pro­vide a log­i­cal frame­work to eval­u­ate res­i­den­tial real es­tate. I was ex­pect­ing some sort of DCF model that uses rent as the free cash flow. Instead he cites Median house/​Me­dian Income and some other con­tin­gent ev­i­dence to prove his point. It is like a book on stock eval­u­a­tion that just uses his­tor­i­cal P/E as a mea­sure. He also fail to pre­sent sim­i­lar sit­u­a­tions that re­sulted in a cri­sis. Quite dis­ap­point­ing in that re­gard


How it re­lates to my choice of sell or rent

I cre­ated my own ex­cel spread­sheet to look at the two dif­fer­ent sce­nar­ios (if you are in­ter­ested I can share). It looks like rent­ing is the loos­ing one. We gain more by sell­ing and in­vest­ing the eq­uity in a con­ser­v­a­tive way. The book made me take a hard look at our lo­cal real es­tate mar­ket: the ra­tio Median House/Median Income is about 4.3 (above 3 is bad). Rents are low and house prices have been grow­ing like crazy. This makes me think to buy a small condo, or even to rent for a while. We haven’t re­ally de­cided yet.


Book sum­mary

1.      House prices are high while every­thing else is low: rents, econ­omy, stocks Yes, there are big­ger houses now and rates are low (but won’t stay low for­ever)

2.      Mortgage takes more and more of the av­er­age salary, fore­clo­sures and per­sonal bank­rupt­cies are at record high. People is more and more lever­aged

3.      The house mar­ket is far away from an ideal mar­ket. A bunch of lenders re­ally make the prices. Bubble can eas­ily cre­ate in in­ef­fi­cient mar­kets

4.      People think houses can just go up: same mind­set as the in­ter­net bub­ble

5.      House prices have been grow­ing like crazy. The fast grow­ers of the past are the fastest grow­ers now: it is like mo­men­tum in stocks

6.      Many of the pre­vi­ous crashes were based on lever­age and some kind of Ponzi scheme

7.      It will start if rates goes up (people can af­ford less), if they go down (the econ­omy will be very weak), banks be­come less ag­gres­sive in lend­ing, con­gress re­duces tax ben­e­fits

8.      Under a worst case sce­nario Fannie Mae and Freddie Mac ($3 tril­lion of very lever­aged and de­riv­a­tive in­vested money) stum­ble and then it may be a world­wide de­pres­sion as banks cred­i­bil­ity goes down

9.      What you can do: de­crease your ex­po­sure to real es­tate (rent, down­size or move to cheaper area), be less lever­aged, hedge your real es­tate ex­po­sure by not buy­ing real es­tate cycli­cal stocks



Korby Parnell


Unless you require a water view, downtown Redmond sounds like it might be a good fit for you. The downtown area (which includes lower Education hill) is very walkable, has a great mix of services and relatively affordable single-family homes, condominiums, townhouses (ie, Rivertrail), and nicer apartments. Enjoy the hunt!

Luca Bolognese


We thought about it (Seattle is to commute heavy). I personally prefer Kirkland. We have been in Redmond after six and there is nonone in the streets. Kirkland on the other end is full of life to the wee hours (plus the lake is nice to walk by). Harder to find value though.

Luca Bolognese s WebLog Book T


Luca Bolognese s WebLog Book T


Luca Bolognese s WebLog Book T


Luca Bolognese s WebLog Book T


Luca Bolognese s WebLog Book T


Luca Bolognese s WebLog Book T


Luca Bolognese s WebLog Book T

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