John Talbott is the author of “The Coming Crash of the Housing Market” (May 2003) and “Sell Now! The End of the Housing Bubble” (January 2006).  His new book out now is called "Obamanomics: How Bottom-Up Economic Prosperity Will Replace Trickle-Down Economics.



Talbott has appeared as a commentator on CNN, Fox News, CBS Marketwatch, MSNBC and CNBC and has published articles in the Wall Street Journal, the Financial Times and The Boston Globe. 

Introduction

Talbott is a former investment banker for Goldman Sachs where he was their top performer and also a visiting scholar at UCLA’s management school.  He was the first to warn about the current housing and mortgage mess (see Comments below) and was instrumental in getting people to realize that the problem was caused by crazy, loose mortgage money from the banks and Wall Street.  His earlier book in 1999, Slave Wages, predicted the bursting of the internet stock bubble that occurred in 2000-2001.  His new book, Obamanomics, attempts to demonstrate that the housing and financial crises are just a symptom of a much larger problem, deregulation brought on by corporate and banking lobbyists.

Comments About Talbott and His Work

• "Talbott is the author of two books that more or less foretold the pain homeowners are now experiencing. ...So far, many of John Talbott's predictions have been spot-on."

                                          - Newsweek - Nov. 6, 2007

• "When John Talbott's controversial book, The Coming Crash in the Housing Market, hit store shelves in 2003, the real estate industry - and everyone else who stood to profit from the dizzying rise in U.S. home prices - gave it a hostile reception... So, with subprime mortgage losses and credit woes now the No. 1 topic in the markets, what does the former Goldman Sachs investment banker see next for the housing market and the U.S. economy?"

                                          - Toronto Globe & Mail - September 14, 2007

• "His analysis is brilliant and wideranging, and he does not stop at economics, but questions the American obsession with "image over substance" (highly-leveraged people buying villas and mansions way beyond their means, financed by increasingly complex "jumbo mortgages")."

                                          - amazon.com - June 7, 2006

• "Sell Now! The End of the Housing Bubble is a data-driven and analysis-rich thesis that convincingly debunks all the current theories that--at least on face value--provide a rationale for our recent boom in housing prices."

                                          - Wharton Alumni Club - April 27, 2006

• "Talbott demonstrates (persuasively, in my opinion) that a major reason for the bubble was banking practices that enable buyers to borrow more when nominal, but not real, interest rates are low. Because nominal rates are low when inflation is low, however, new buyers have a harder time "growing their way out" of a large mortgage. ... a well-reasoned, compelling book. Highly recommended."

                                          - Beth A. Fox - April 17, 2006

• "Please read Talbott's book closely: Is your home at risk? Then quickly decide whether you can hang on in a housing collapse, a stock market bear and another long recession."

                                          - Dow Jones Marketwatch - March 13, 2006

• "Mr. Talbott's work is badly needed at a time when honest and unbiased advice is hard to come by. I have been doing quite a bit of research over the Web in the topic of real estate investment. What it all boils down to is this: the advice offered by anyone remotely linked to the real estate industry, mortgage finance industry, etc, is always, without a doubt, BUY, BUY, BUY."

                                          - Allen Lee - July 20, 2003

• "Talbott blames (the overheated housing market on) lenders for throwing ever larger mortgages at home buyers while requiring ever smaller down payments. Indeed, Mr. Talbott seems to consider lending out of control, warning that consumers are up to their eyeballs in debt of all kinds. He fears that when the housing bubble bursts it could have huge effects on the economy.  These post-bubble calamities are what really keep Mr. Talbott up at night, and his sobering book should inspire a little tossing and turning in the rest of us too. He worries that many private mortgage insurers are so badly undercapitalized that they will be unable to save themselves if housing prices fall, never mind their lender-clients. And he frets that falling prices and rising foreclosures could threaten commercial banks, whose mortgage holdings far outstrip their equity.  He especially worries about Fannie Mae and Freddie Mac, the two mortgage giants who enjoy an implied government guarantee of their liabilities, a guarantee that the author sees as distorting the mortgage market and encouraging undue risk-taking throughout the system. 'If a contagion reaches inside the comfortable offices of Fannie Mae and Freddie Mac,' he writes, 'there is no pessimistic scenario I can describe that will adequately depict the ensuing disaster.'"

                                          - Wall Street Journal - June 4, 2003      

Recent Newsweek Article on Talbott


When Will the Slump End?

At the height of the boom, author and former Wall Streeter, John Talbott warned of the crisis to come.  Unfortunately, his latest predictions aren't promising.

By Daniel McGinn

Newsweek Web Exclusive

November 6, 2007

When most of us read news about the falling housing market, we have to suppress a groan or an expletive. But John Talbott greets the headlines with a grin—and the very strong urge to shout "I told you so!"

Talbott is a former Goldman Sachs banker and economic consultant. He's also the author of two books that more or less foretold the pain homeowners are now experiencing. "When I turn on the news, it's as if they're reading out of my books, but in real time," says Talbott, who in 2003 wrote "The Coming Crash in the Housing Market: 10 Things You Can Do Now to Protect Your Most Valuable Investment."

Talbott began writing that book, he told me last week, after hearing that a friend—a teacher in San Diego who earned $45,000 a year—had just refinanced his condominium and borrowed $255,000 against its rising value. From his days as a Wall Street financier, Talbott questioned whether someone with that income could handle such a large mortgage. His friend's experience led him to begin exploring how home prices had risen and lending practices had changed over the last few years.

The result of this digging was "The Coming Crash," a 185-page paperback filled with charts and graphs. In it Talbott argued that Americans had grown too fond of adjustable-rate mortgages and were drawing too much comfort from real-estate agents' assurances that nationally home prices haven't fallen year over year in at least five decades. He raised questions about Fannie Mae and Freddie Mac's role in home finance—and questioned why their financial statements weren't more transparent. Most of all, he concluded that homes were overvalued.

In retrospect, the book contained some real insights. But as Talbott promoted it during 2004 and 2005, home prices kept soaring higher, which led some people to treat him like Chicken Little. "I started to hear from people: 'Oh, you must have been wrong—the housing market is still up'," Talbott says. "I kind of got pissed off."

That's when he started to write his second book, "Sell Now!," which was published in early 2006, just as the first cracks in the housing market were becoming apparent. As the title suggests, this time Talbott was more vocal in urging homeowners to cash in their winnings. "You must act. You must sell," wrote Talbott, who's currently renting a home in Kentucky. Near the back of "Sell Now!" is a chart listing the metro areas Talbott believes are most likely to decline sharply. I read the chart with particular interest: my own home is located partway between Boston (no. 19, where Talbott believes home values are destined to fall 49 percent) and Worcester, Mass. (no. 26, with a predicted fall of 44 percent). If Talbott's predictions are accurate, my neighbors and I are in for a world of hurt.

Despite his negative outlook, Talbott is pleasant and easy to talk to. During our phone interview I tell him I'm surprised to find myself enjoying a conversation with a guy who's predicting that the value of my family's biggest asset will fall by almost half. He says many people—including TV hosts—react with hostility to his message. "I would go on these talk shows, and within four seconds I could almost tell the value of [the host's] house and the value of his mortgage just by his questions," Talbott says.

So what does he make of the way the housing bust is playing out so far? He cites data showing that, nationwide, average home prices have fallen by around 5 percent. But he believes the true drop in value is probably steeper, since the current statistics are based on houses that actually change hands and don't reflect the huge glut of homes languishing on the market. That bloated inventory reflects the fact that many people aren't yet willing to acknowledge the reality that their home is worth less than they're asking for it.

Talbott believes we're still near the beginning of a five-to-seven-year cycle in which home values will fall back to the levels of 1997, when banks and mortgage lenders began letting so many Americans take out so many kooky home loans, which were the primary fuel for the boom. He also expresses surprise that the continuing stream of bad news from the housing market hasn't taken more of a toll on the stock market. Over time, it will.

Recently a congressional subcommittee predicted that the subprime mortgage crisis will result in 2 million foreclosures over the next few years. Talbott wonders if people really understand the magnitude of the suffering that will cause. "When people talk about 2 or 3 million people losing their homes, that makes Hurricane Katrina look like small potatoes," he says. "[And] this is spread out over the whole country."

So far many of John Talbott's predictions have been spot-on. But as the housing bust continues, homeowners in my neighborhood and beyond have every reason to hope his prescience proves short-lived.

Daniel McGinn is a national correspondent at NEWSWEEK and the author of House Lust: America's Obsession with our Homes, to be published by Doubleday this winter.

©  2007 Newsweek.com

·        John R. Talbott. July 26, 2004. “Turn Out the Lights - The Housing Party is Over”. The Financial Times. London: The Financial Times Limited.

·        John R. Talbott. June 14, 2004. “Home Investments Report: The Housing-Price Run-Up Can't Last; The Housing-Price Run-Up Will Go On; Two Experts Debate the Issue”. The Wall Street Journal. New York: Dow Jones & Company, Inc.

·        John R. Talbott. July 27, 2003. “Yes, the Market is Ripe for a Crash”. The Boston Globe. Boston, Mass: The New York Times Company.