From Japan to the U.S.

With recent news of Japanese land prices on the rise for the first time in 16 years alongside yesterday's dismal report on new home sales here in the U.S., it seems an appropriate time to have another look at the Japanese real estate boom that went bust early in the last decade and how that might relate to the U.S. and other Anglo Saxon housing markets of recent years.

As might be expected, Wikipedia has a handy chart to go along with a somewhat brief account of the Japanese asset price bubble that now appears to be making a slow transition out of the "bust" phase after almost two decades.


The chart portends a less-than-rosy fate for house prices in Anglo Saxon countries, a view contrary to most of the mainstream media that either sees the bottom in the rear view mirror or an ongoing correction lasting only a year or so.

If only it could be that simple. If only asset prices could just keep rising in perpetuity, along with credit that could continue to expand until the end of time.

Rising Land Prices in the Land of the Rising Sun

Land prices in Japan are making a tentative comeback after nearly two decades of decline led by increased demand from investors for property in the country's three largest cities.

Last week, the Ministry of Land, Infrastructure and Transport reported that commercial land prices in Tokyo, Osaka, and Nagoya rose almost nine percent on average during 2006 and residential land prices increased 2.8 percent.

In chart form, via this story from Haver Analytics, it looks like this:


It's a start.

Naturally, in this over-liquefied world of fast moving money, Goldman Sachs spies an opportunity there and the firm is said to be investing heavily, no doubt aided by interest rates held at still freakishly low levels by the Bank of Japan.

Some are already starting to talk about another bubble developing.

This memorable story from just over a year ago comes quickly to mind - the tale of Yoshihisa Nakashima who bought a small flat in a Tokyo suburb fifteen years ago entertaining thoughts of quick riches only to find a very different fate as poster boy for the long slow decline in Japanese home prices.

So Mr. Nakashima, a Tokyo city government employee who was then 36, took out a loan for almost the entire $400,000 price of a cramped four-bedroom apartment. With property values rising at double-digit rates, he would easily earn back the loan and then some when he decided to sell.

Or so he thought. Not long after he bought the apartment, Japan's property market collapsed. Today, the apartment is worth half what he paid. He said he would like to move closer to the city but cannot: the sale price would not cover the $300,000 he still owes the bank.

With housing prices in the United States looking wobbly after years of spectacular gains, it may be helpful to look at the last major economy to have a real estate bubble pop: Japan. What Americans see may scare them, but they may also learn ways to ease the pain.

No, it's still way too early to talk about easing the pain (unless you're in Congress). Nearly everyone involved in the U.S. real estate market is still stuck in the denial phase - the reaction to yesterday's new home sales report should bear this out.

The Blogging of the U.S. Housing Bubble

In looking for a few bits of information on Japanese real estate prices, the U.S. housing bubble page at Wikipedia was stumbled upon and found to have grown to enormous size.

This was quite a shock actually, as, having been involved in this story for quite some time now, it was remembered as being just a little bitty thing not too long ago. Now there are over 100 detailed references along with the mandatory Time Magazine cover story from 2005, one from The Economist, charts from Robert Shiller, dozens of references to NAR chief economist David Lereah, a photo of the Washington D.C. "bubble bench", and more.

There are even some neat formulas like you might see in some study by the Federal Reserve making the case that renting might be a better option than owning at times like these.

A lengthy list of further reading from The Economist magazine is available - a publication that was far ahead of any other mainstream news media organization on this story.

Alas, most of the readership of The Economist probably knew how the story was going to end anyway. If only the editorial staff could get a 7PM half-hour show to compete with Entertainment Tonight here in the U.S., then maybe a good portion of the misery now showing up on a daily basis in local papers and on the evening news could have been avoided.

Lastly, in the undistinguished position at the bottom of the page, is an External Links section containing more than a dozen references to "Housing Bubble Weblogs". This loosely knit group of commentators was there from the beginning too, right along with The Economist.

The group is now getting an extraordinary amount of media attention and deservedly so. It's odd that Calculated Risk is not included near the top of the list - an oversight that will likely be fixed in the near future.

What to make of all of this?

Well, one this is sure. Whatever part of the world next inflates a property bubble - perhaps ten or fifteen years from now, maybe much sooner - they will have a much better source of information on previous real estate bubbles thanks to Wikipedia and housing bubble blogs.

Will it help? Probably not.