Posted on 09/08/2006 7:36:42 PM PDT by dirkdavies68
A Cautionary Housing Tale from Japan In the summer of 1990, with my freshly minted Bachelor's degree from the University of Washington, I went off to Japan to make my fortune. In the late 1980's if you recall, Japan was the place to be - Japanese management was all the rage, the Nikkei was soaring, and Japanese businessmen were buying up impressionist paintings and prime properties around the world at record prices. Americans were fretting and wringing their hands at the prospect of being displaced as the world's supreme economic power.
by Michael Nystrom
September 8, 2006
Cambridge, MA
In spite of all these good economic reasons to stake a claim in Japan, the reason I was there had little to do with all of that. While I had heard of the "bubble economy" in college, I frankly had no idea what it meant. (Having just graduated from college, I barely knew my ass from a hole in the ground, and it was only after leaving school that my true education began.)
(Excerpt) Read more at bullnotbull.com ...
But now the tidal wave of bad news is hitting the media. The Dallas Morning News reports:
The Moral of the Story
Most of the people I know today either glibly, or grimly, believe that housing prices in the US will never come down - or if they do, it won't be that much - just like my Japanese uncle once did. The glib ones are those who already own a home and are just waiting for the higher prices that they know are coming. The grim ones have been shut out and believe that they'll never own a home, and so are ready to pounce on the first opportunity they can afford to buy, even if the house is not suitable either physically or financially. But I know that just as prices spiraled up for years, they can also spiral down for years.
The advantage my uncle had of renting a government-subsidized unit was that he was able to save a lot of money for his house. But had he waited only a few more years, instead of jumping on the first thing he could afford, he could have bought twice as big a house, or had half as large a mortgage. And his life would have been quite different. My Uncle already learned this lesson once, and I pass this story along so that you also might benefit from his experience.
When I finish this article and post it, I'm going to get on the horn to my friend T, who is a real estate agent in Seattle. The last time I spoke with him, he told me that things were holding up well in Seattle - business was brisk, and prices were still rising - a big contrast to Boston. I'm going to get his perspective, and see what kind of advice he's giving current buyers and sellers. And tomorrow I'm going to call the agent for the house next door to mine, which has been for sale now for about 3 months. I've never seen anyone visit it, and I've never seen an open house, so I think I'll call the agent and see what I can find out.
That's for next week's report. If you'd like to be notified, please sign up to my low-volume email announcement list.
" And sometime, in the remaining 48 years on the mortgage, the house may once again be worth more than what is owed on it. "
The LAND will certainly be worth something , but the actual structure won't be worth much even if well maintained .
I was cured of the delusion that house prices never go down back in 1964 when I was a teenager. My father made a job related move from one metro area to another, and had to sell the house for a loss of several thousand dollars, due to a slump in the housing market of our former residence at the time he put it on the market.
I strongly doubt if the current slump will mirror Japan's, but given the prevalence of "crazy" mortgage products, the stagnation of household income, and the large number of marginal to very weak borrowers who have been shoe-horned (very temporarily) into 'home-ownership' with subprime mortgages, many of those who are forced by circumstances to sell in the next couple or three years are likely to have our family's unpleasant experience.
Well, you have to know how to value an asset.
Could a reasonable person have told that the Japanese real estate market was overpriced in 1990? I would say yes.
Now look at the US. How do housing prices compare to rental values? How do housing prices compare to the cost of materials and labor need to build them? In many parts of the country, they are reasonable by these measures.
Now in Boston, or New York, or California, they may be a bit high. But even in these places, I wouldn't wait around for a 50% drop. Our economy is too strong, and the earning power of potential buyers too high, for this to happen.
Of course, I could be wrong, or things could change.
His life moves parallel my own so neatly, it's EERY..!
ping
Japan has gone through banking gridlock since their 1990 stock market crash. (Banks didn't write off their bad loans, and therefore couldn't make new loans.) That hasn't happened here and is unlikely to.
And the next direction for interest rates is down.
Of course, I could be wrong, or things could change.
And that's the difference between us and the doom and gloomers who have been predicting a real estate bloodbath six or seven times a day, every day for the past few years.
I got a joke e-mail several years ago about the Japanese banking crisis...you've probably seen it..."the Origami Bank has folded..something is fishy at the Sushi Bank..." Laughed my a** off!
"Two rooms that were each about 12 square feet"
Big difference between 12 square feet (a 3' x 4' closet is 12 square feet) and 12 feet square, which would be 12' x 12' (144 square feet). I suspect the author meant 12' x 12'.
Another thing to keep in mind is that, although it's a crowded country with limited space suitable for building, Japanese population is stable or even declining. We've added the equivalent of THE ENTIRE POPULATION OF JAPAN since I started high school.
JApan's slump, if you recall, or realize, had little to do with real estate, or the world economy, but had much more to do with the Japanese government's unsustainable manipulation of the economy, especially interest rates which were on the order of 1 per cent, or even negative if adjusted for inflation.
Nothing remotely like that exists in this country at this time, and making a comparison between our economy and that of Japan in the late '80s/early '90s borders on the silly.
Redbob - You're a real funny one. That is the most hilarious thing I have ever heard! What has the Fed been doing for the past five years, if not manipulating interest rates?
And after years of raising rates, the yield curve is flat. What do you think that means?
bump for later entertainment......
Back in 1990 I was seriously infatuated with Japan and all things Japanese. I was studying Japanese at school, living with a Japanese girlfriend and spent my summers working in Japan, but I remember having serious doubts about the Japanese economy even then. The value of the Nikkei was at the time more than the combined value of all the other stock markets in the world and regardless of how well run and efficient Japanese companies were, they simply weren't worth more than all the rest of the worlds companies combined, in fact they weren't even close. That was just obvious on the face of it, even to someone like me.
Bump!
You must not pay too much attention to the housing market, there was a housing crash in the Boston area market about 15 years ago. I bought my hous in southern New Hampshire in December of 1984, by the time we closed in February of 1985 the house had appreciated 50 thousand dollars!! If we had waited until I transferred up to find a house we would have been priced out of the market. I had friends who bought condos in the mid 80's that did lose over half their value. One friend rode it out, the other declared bankruptcy and gave the condo back to the bank. 14 years after we bought our home we sold it and moved. The price was that same $50k higher that we had earned in those first few months. There used to be a big building suppy chain called Somerville Lumber. At one time 7 of the 10 highest volume stores in America were Somerville Lumber stores. By the end of the 80's they had either gone belly up or sold off a lot of their assets I don't remember. That market was a disaster. It was also the time of the Savings and Loan crisis, remeber that?
But, as they say, one man's disaster is another man's good fortune. When the market collapsed a lot of people who had down payments saved up because they had been priced out of the inflated market suddenly could afford a decent home. That lesson stays with me to this day, I wouldn't even consider buying in this market.
*BUMP*!
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