Saturday, September 09, 2006

Japan's Housing Bubble

Great narrative of the Japanese housing collapse by Michael Nystrom. Most definately a must-read. Here are a few excerpts from his story:

A Cautionary Housing Tale from Japan

In spite of the booming economy, my uncle, like many Americans today, was shut out of the housing market. Prices always seemed too high, but a pullback never materialized, so he waited until the right time to buy. While he waited, prices spiraled up and away until at last they were hopelessly out of reach. By the time I arrived in 1990, his family was living in a government-owned, rent controlled flat that was, by any standards, small: Two rooms that were each about 12 square feet, a small kitchen and a tiny bath to serve three adults (including his mother) and his two kids. (Japanese rooms are multi-use rooms, so at night when you're done eating and watching TV, the furniture is put away and the futons come out and everyone sleeps together on the floor). His was a unit on the first floor of a huge concrete building that sat in the middle of a sea of identical buildings. The picture below is not his actual building, but you get the idea.
...
By 1994, housing prices continued to drift lower until some units started to become, with considerable stretching and creative financing, affordable. So that year, by taking out a two generation, 60-year mortgage -- with his 16-year old son on the hook for the remaining years that he might not be able to pay -- my uncle bought his first home. The family had to scrimp, and both he and my aunt had to work more hours, but they were finally, proud homeowners. And it was a nice house - larger than their old house (but not much), in a nicer neighborhood, and on a higher floor with a view of the treetops. I even helped them move in. It was a happy day. I don't recall the exact price he paid, but I remember thinking that it sure was a lot! Somewhere north of half a million dollars. Those were the kinds of details were lost on me at that age.
...
I left Japan in 1994, and didn't return again for a visit until late 1998. In the intervening 4 years, housing prices had continued to fall, and fall, and fall to the point where my uncle's house was worth only half of what he had paid for it four years earlier: A couple hundred thousand, up in smoke, just as Japan's economy was mired in a 13-year slump. But he stuck with his loan, hoping the value will come back. And one day, it just might. So he makes his payments each month faithfully, and when he can no longer make them, his son will take over and pay off the remaining balance. And sometime, in the remaining 48 years on the mortgage, the house may once again be worth more than what is owed on it.

21 Comments:

Anonymous Anonymous said...

Good post Grimster.

do you smell that smell.....home equity is burning up....

9/09/2006 12:17:00 PM  
Anonymous Anonymous said...

Do you hear that sound?

That is the sound of inevitability.

"Everything proceeds to an unchangeable inevitable pattern. When you know enough about any situation its future is entirely predictable" or "All events are predictable, therefore inevitable and all events are inevitable, therefore predictable".

Think on that one over a good glass of pinot.

SAS

9/09/2006 01:38:00 PM  
Anonymous Anonymous said...

Consumer spending & retail sales also fell in Japan during this period. No such thing here in the US.

Overall Consumer spending is rising at the fastest rate since 1999 or likely faster than anytime since the recovery from the 1981-1982 recession..

I only see this as a pause in the market that will be very very short lived especially here in the NYC metro area where rents are 'spiking' or 'surging' higher.

On a fixed mortgage PITI is fairy stable, average rent on non regulated apartments are rising between 5% - 40% over last year especially in the 'other 4 boros' outside Manhattan. Doesn't pay to continue to pay $3,000 a month or $36,000 for rent when you gain nothing from it.

9/09/2006 01:45:00 PM  
Anonymous Anonymous said...

I think we are about 5 years behind Japan. So, study this boom/bust. Learn what worked and what didn't. IF you really understand the dynamics of what happened in Japan, you can make bucket load of money here. For those who say you don't have a crystal ball, hark... yes do do.
This crystal ball is called history. Get off your duff and read up on this, for this is coming our way. The Japs are no different then Americans. Irrational exuberance knows no boundaries or colors.

You want your crystal ball, study this topic and Grim's you do the voodoo web page.

Unless, you want me to make all the money ;) I have no problem with that...

SAS

9/09/2006 01:47:00 PM  
Anonymous Anonymous said...

'Consumers' have just gone back to credit cards.

I hear people taking about credit card debts all over the five figures. Some even talk about $70,000 of credit card debt.

Living in NYC having $30,000 of CC debt is average if you are only making $75,000 a year like myself and where it seems like everyone makes more than you are is doing 200% better.

9/09/2006 01:47:00 PM  
Blogger njresident286 said...

"Doesn't pay to continue to pay $3,000 a month or $36,000 for rent when you gain nothing from it. "

it does when it would cost you 6500 a month to buy a similiar place after throwing 100k down. Especially if you think the market is going to drop in the upcoming years.

9/09/2006 01:48:00 PM  
Anonymous Anonymous said...

anon 9/09/2006 02:45:38 PM,

The Asian countries don't also have the credit system in place like we do in the states. How much of the so called "Consumer spending" was done on credit? I would say most of it. And those $300 dollar jeans were bought on credit, and when they eventually pay off the credit bills, those jeans now cost them $900. Keep the credit systems of the various countries in mind when you compare "consumer spending".

Also, are you familiar with the word : "arbitrage" If not, may I kindly suggest you familiarize yourself with it.

I know of renters in nyc. If one is paying $3,000. Then yes, that is foolish because you can find decent apartments for under $3,000. It may not be the Ritz Carlton, Park Ave, or CPW, but hey...its cheap rent.

SAS

9/09/2006 02:00:00 PM  
Anonymous Anonymous said...

anon@2:45
Doesn't pay to continue to pay $3,000 a month or $36,000 for rent when you gain nothing from it.



[cry baby] wha..wha..wha... please buy my house.

My rent is $1700K and I live close to a train station which is 40 min from NYC. I want to buy a decent house without mortgaging my family's future. My rent is easily paid off using interest income from my MMA account. I don’t work in NYC … all I want is affordable housing in NJ.

9/09/2006 02:08:00 PM  
Anonymous Anonymous said...

lol, I was just skimming through some of Grim's old blogs. I saw this one and it made me chuckle.
wow..I wonder what this poor sap thinks these days and if he is upside down yet? The party in RE may be over, but for me, the party has just begun. To all the sellers...I can show you how to tie a noose.

Notice the date below.

SAS

"I accidentally found your blog & couldn’t stop laughing at your supposed intelect It is no surprise to me that the majority of readers are as negative & pessimistic as yourself. Please show me what market indicators show a bubble. A home is not a piece of paper such as stock in CISCO.

Do you remember the 80’s? We had double-digit rates & homes took long to sell. Many builders over built & yet homes still held their value. Perhaps they didn’t appreciate much. As a matter of fact, there has been no record of homes depreciating in value since the great depression. Are you comparing our current economy to the great depression?

Yes, there is a market slow down. It has nothing to do with the economy, jobs, interest rates, or over building. There may be indication of major slow downs with over building in other parts of the country, but not here.

Most of you don't own anything & probably have very little to look forward to.

11/18/2005 09:18:51 PM "


Man...now thats some funny stuff.
SAS

9/09/2006 03:50:00 PM  
Anonymous Anonymous said...

You people are so damn naive.

What do you think you GET for $3,000 a month rent in NYC??

Answer a 500 square foot apartment on the far Upper East Side (in the high eightys & nineties) east of second avenue..

Sure, it really pays to spend $36,000 a year on rent for a s**tbox apartment, or $2,000 a month for a shitty apartment in a crime infested part of Jersey City. Meaning for $2,000 a month in Jersey City, you get a one bedroom near the Bayonne border (but not in Bayonne).

Maybe you can spend $3,000 or $4,000 a month for an apartment in Hoboken.

And what a great deal, $3,000 a month rent versus $6,000 a month PITI just to pay an 'apartment'. Great use of ones money.

No wonder landlords are making more money from rentals than anytime in the last 40 years.

9/09/2006 04:45:00 PM  
Anonymous Anonymous said...

I know of renters in nyc. If one is paying $3,000. Then yes, that is foolish because you can find decent apartments for under $3,000. It may not be the Ritz Carlton, Park Ave, or CPW, but hey...its cheap rent.


It won't be anywhere in the 5 boros.

Try Suffolk County near the William Floyd Parkway for an affordable rental apartment. Forget about Nassau county for less than $3,000 a month.

9/09/2006 04:47:00 PM  
Anonymous Anonymous said...

why don't you take your complaining to the nyc blogs?

9/09/2006 04:55:00 PM  
Anonymous Sugee said...

My husband works in NYC, we live in Central NJ, 2 miles from the station from where trains take 40 minutes to mid-town or down-town (via PATH). We pay 1350 pm for a 850 sq.ft 2 bed/2 bath apartment.

Similar apartments are selling at about 230K. If we make a full 20% down, maybe the mortage and taxes will equal renting. But in a market going south we dont want to part with that precious cash.

9/09/2006 05:52:00 PM  
Anonymous Anonymous said...

SAS-
you are so smart. great posts! what do you do for a living? how much do you make? how old are you?

how much do people make who read this blog?

9/09/2006 07:04:00 PM  
Blogger lisoosh said...

Whats the difference between paying $3000 a month in rent and $3000 a month in interest, property taxes and maintenance fees?

9/09/2006 07:10:00 PM  
Anonymous Anonymous said...

anon 9/09/2006 08:04:01 PM,

"you are so smart"

he...he... I am sure my 4 x-wives would say otherwise ;)

"what do you do for a living?"

My current team assignment is making sure American interests and intellectual proprty stays just that....American. We don't care who makes what, we just care who gets the money. Example. Flip your cell phone over, see those words CDMA. CDMA is owned by Qualcomm, but it should really be owned by the Koreans. There was no way we were going to have the god damn Koreans corner the US cell phone market, we put a stop to that....get the drift??

"how much do you make?"

I have 3 fully paid homes and drive one nice car ;)

"how old are you?"

I was knee deep in Operation Hastings (Vietnam) while alot of these bloggers fathers were doing you know what while looking at the lingerie section of the Sears catalog.

SAS

9/09/2006 08:22:00 PM  
Anonymous Anonymous said...

"You people are so damn naive.

What do you think you GET for $3,000 a month rent in NYC??

Answer a 500 square foot apartment on the far Upper East Side (in the high eightys & nineties) east of second avenue.."

You should really look at Craigs list. Alot of 1 and 2 bedrooms for under $3,000. In decent areas.
Last I checked West End Ave was a pretty nice street. Its right around the corner from my street, Riverside Drive.

SAS

9/09/2006 08:37:00 PM  
Anonymous Gary said...

Please don't hate on those of us who have jobs that dictate we work in New York.

I'd prefer to be living in Delaware, with a huge house, couple BMWs in the garage, no debt, and a wife who doesn't have to work like the majority of my buddies.


Finally accepting the fact that I'd never get ahead in Jersey, I tried my darndest to get a job in Minneapolis earlier this year and the company ended up losing a ton of business right before they were going to hire us.

Other than that little industry anomaly, I'm forced to work in NY, LA, Miami or Chicago if I'm interested in any kind of career longevity.

Bummer.

But at least my job's fun. So, maybe $3,000 a month rent is what I've got coming to me? Some karma shiz right there.

9/10/2006 09:06:00 AM  
Blogger yo me said...

This comment has been removed by a blog administrator.

9/10/2006 09:45:00 AM  
Blogger yo me said...

Does japan housing bubble really compare to current US housing bubble?
1990 in japan 2 rooms 288 sq ft
sold for $500,000.00
2006 $500,000 will buy you something nice in US and maybe double the size.
current average size of land in japan or asia 150 sq meter in US
10,000 sq ft.more than 3 times the size.
houses doubled in size in US.
1,200 sq.ft to 2,400 sq ft. when inflation corrected prices of homes back to 1950's prices.
http://tinyurl.com/e4so5
1998 is uncles house is worth $250,000.maybe more now?
japan:$250,000/288 sq ft=$868.05.00/sq ft assuming price still $250,000 after8 years
US:$500,000/2400 sq ft=$208.00 sq ft
is it really comparable?

9/10/2006 10:04:00 AM  
Anonymous Anonymous said...

"is it really comparable?"

Answer...yes.

Japan happend to be more extreme, but the trends are exactly the same.

SAS

9/10/2006 01:47:00 PM  

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