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Japan provides a nasty warning of what can happen when boom turns to bust. Japanese property prices have dropped for 14 years in a row, by 40% from their peak in 1991. Yet the rise in prices in Japan during the decade before 1991 was less than the increase over the past ten years in most of the countries that have experienced housing booms (see chart 3). And it is surely no coincidence that Japan and Germany, the two countries where house prices have fallen for most of the past decade, have had the weakest growth in consumer spending of all developed economies over that period. Americans who believe that house prices can only go up and pose no risk to their economy would be well advised to look overseas.
E-mail the link to everyone you know.
Friends don’t let friends buy at the peak.
Japanese real estate has little in common with the US. In Japan most people live in large apartment buildings – whether they’re renting or buying. It’s the norm for these buildings to go down in value. Why? Because people want to live in NEW apartments. Buyers pay a monthly fee called a “reform” fee so that after several years the building can get rehabbed. If the building is rentals then it gets torn down for a new one to be constructed.
Posted by difference on June 17, 2005 at 14:35:11:
Can’t read the link but can’t see the parallel either. A major difference between America and Japan is population growth. America’s is increasing and this means a demand for more housing. Japan’s population is expected to peak out at 127 million in 2006, and then move into a period of decline. http://www.stat.go.jp/english/data/handbook/c02cont.htm
I’m no forecaster but real estate appears to still look good overall for many years to come despite the cyclic ups and downs. Our population is predicted to reach 350-400 million by 2025.
Unless we have deflation for some reason, it’s doubtful that overall prices are going to drop other than on a temporary basis. Even if interest rates increase it is likely we will have inflation too. Inflation will increase prices on everything including houses. Real estate is a great hedge against inflation.
Of course, if you are dangerously leveraged at this time, it would be wise to sell at the top of a cycle and move your equity into a safer investment. Agree about not buying at the peak unless it’s the right deal to lock in the low rates.
I can understand–easily–how the homes at the higher end of the market are going to be affected in a big, nasty way. In my town, there are a LOT of newer, huge homes. I’m sure that many of them are being bought by people with interest-only loans because there just flat out aren’t AS many jobs that pay that much money as there are homes that cost that much money.
Right now, I’m trying to work on two things: 1) flips, which seem pretty low risk, and 2) rentals that provide cash flow. Quite honestly, with the properties I own (and the one I’m looking at Friday morning), I’m working in the lower quartile of home values.
I would think that in my town, rents are going to remain reasonably stable–it’s a college town and the demand for housing isn’t going down soon. In fact, I’d think that the homes in the lower sections of the market would avoid the nasty correction that some of the high dollar homes are sure to see. When people bail out of their mansions, they are going to be looking to land somewhere. I’ll be there to rent 'em a home–or maybe lease-to-own!