Friday, August 29, 2008

Housing Bubbles: America vs. Japan

The Economist compares Japan's real estate bubble with America's:
AS FALLING house prices and tightening credit squeeze America’s economy, some worry that the country may suffer a decade of stagnation, as Japan did after its bubble burst in the early 1990s. Japan’s property bubble was also fuelled by cheap money and financial liberalisation and—just as in America—most people assumed that property prices could not fall nationally. When they did, borrowers defaulted and banks cut their lending. The result was a decade with average growth of less than 1%.

Most dismiss the idea that America could suffer the same fate as Japan, but some of the differences are overstated. For example, some claim that Japan’s bubble was much bigger than America’s. Yet average house prices nationwide rose by 90% in America between 2000 and 2006, compared with a gain of 51% in Japan between 1985 and early 1991, when Japanese home prices peaked. ... Japanese home prices have since fallen by just over 40%. American prices are already down by 20%, and many economists reckon they could fall by another 10% or more.

What about commercial property? Again, average prices rose by less in Japan (80%) than in America (90%) over those same periods. Thus Japan’s property boom was, if anything, smaller than America’s. Japan also had a stockmarket bubble, which burst a year earlier than that in property. This hurt banks, because they counted part of their equity holdings in other firms as capital. But its impact on households was modest, because only 30% of the population held shares, compared with over half of Americans. ...

John Makin, at the American Enterprise Institute, a think-tank, argues that monetary and fiscal relief were necessary but not sufficient to revive Japan’s economy. The missing ingredient was a clean-up of the banking system, on which Japanese firms were more dependent than their American counterparts. ...

One advantage over Japan, says Mr Jerram, is that America is spreading the costs of its housing bust across other countries. ...

By learning from Japan’s mistakes, America can avoid a dismal decade. However ... experience in other countries shows that serious asset-price busts often lead to economic downturns lasting several years. Only a wild optimist would believe that the worst is over in America.
The worst is over in America. ;-)

9 comments:

  1. Remember when the mighty Soviet Union was involved in a long ground war in Afgahnistan? They lost that war... miserably, to a bunch of rag-tag tribesmen.

    Remember when the US quickly took control of Afgahnistan in response to 9/11/01? An Afgahnistan that had a chance to bolster its defenses after running the Soviets out with their tail between their legs?

    Hey, somewhere in Southeast Asia, a butterfly just fluttered its wings. That means we will experience hurricanes here in September.

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  2. I'm so glad I'm a renter! I've been socking all my extra money away in stocks and mutual funds... oh wait. I'm not so glad after all.

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  3. This place in a "bad" part of DC listed at $599,000 in June of this year. It went to contract within one week. Here are details of the recent settlement:

    " From the "Residential Real Estate Transactions" column in the Friday, August 29, 2008, Washington Business Journal: "Robert Edward Moyer to Nikolas and Yvett T. Wissmanj, 77 R Street NW, Washington DC 20001, Lot 88 Square 3102 Bloomingdale, $612,500."

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  4. I dont understand comparing housing to our war budget at all.

    First off Afganistans war against the Soviets was backed by BILLIONS of US taxes....of course they faired better against the soviets than the US when they werent backed by anyone at all.

    Second, your analogy about a hurricane sucks too...cause every hurricane that comes and destroys US cities starts out as a tiny little rain cloud off the coast of Africa.

    p.s. Japan aint no butterfly in South East Asia. Japan is the second largest economy on earth, and we buy everything they make like we have a crack habit. If they had problems with real estate that lasted 10 years, you better believe ours could last twice as long as their problem.....Japan doesnt buy ANYTHING from us. Its a one way street with their GDP.

    ;)

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  5. "I'm so glad I'm a renter! I've been socking all my extra money away in stocks and mutual funds... oh wait. I'm not so glad after all."

    I guess you would prefer to have bought a home to only have it go into foreclosure this year then?

    I mean, filing for bankruptcy is today's new investment plan!

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  6. I guess you would prefer to have bought a home to only have it go into foreclosure this year then?

    So everyone who ever bought a home prior to today is destined for foreclosure?

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  7. p.s. Japan aint no butterfly in South East Asia. Japan is the second largest economy on earth, and we buy everything they make like we have a crack habit. If they had problems with real estate that lasted 10 years, you better believe ours could last twice as long as their problem.....

    yep, the price of real estate in an island nation in the Pacific Rim will certainly affect the price of real estate in Ohio.

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  8. "So everyone who ever bought a home prior to today is destined for foreclosure?"

    I didn't say that. However a huge percent of them are.

    So I take it you think everyone who bought in the past 3 years made a very wise investment.

    "yep, the price of real estate in an island nation in the Pacific Rim will certainly affect the price of real estate in Ohio"

    I didn't say that either, I said if Japan, who is better off than we are have been in a slump for 15 years, 2 short years in our country is just a tip of the iceberg.

    Truth be told, everyone losing their butt on their house in the US, has more of an effect on Japans economy, cause nobody can afford those nice electronic trinkets and lexus cars after filing bankruptcy for being a moron and buying a house only multimillionaires could afford.

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  9. I didn't say that either

    We're glad you came to your senses and pulled back from your previous untenable assertations.

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