Are we gonna experience the same Japanese Housing Burst at 1991?

[falcon_eyes]

I stumbled upon this article, written on December 2005 but the statements are almost identical to what we’re experiencing right now.

http://www.iht.com/articles/2005/12/25/business/bubble.php

quoted from the article:
[1]
14 years ago, So 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.

[2]
Homeowners were among the biggest victims of the Japanese real estate bubble. In Japan’s six largest cities, residential prices dropped 64 percent from 1991 to last year. By most estimates, millions of homebuyers took substantial losses on the largest purchase of their lives. Their experiences contain many warnings. One is to shun the sorts of temptations that appear in red-hot real estate markets, particularly the use of risky or exotic loans to borrow beyond one’s means. Another is to avoid property that may be hard to unload when the market cools.

[3]
Like their U.S. counterparts today, too many Japanese homebuyers overextended their debt, buying property that cost more than they could rationally afford because they assumed that values would only rise. When prices dropped, many buyers were financially battered or even wiped out.

[4]
“During a bubble, people don’t believe that prices will fall,” he said. “This has been proven wrong so many times in the past. But there’s something in human nature that makes us unable to learn from history.”

[5]
Economists and real estate experts see other parallels as well. In the 1980s, the expectation of rising real estate prices made many Japanese homebuyers feel comfortable about taking on huge debt. And they did so by using exotic loans. A similar pattern is found today in the United States, where the methods include interest-only mortgages, which allow homebuyers to repay no principal for a few years. But when property prices dropped in Japan, homeowners found themselves saddled with loans far larger than the value of their real estate.

[falcon_eyes]

Should we the USA follow the same economic strategy that Japanese did to combat this? …. which I believe to cut the interest rate all the way to 0% for maintaining the stable stagnant economy welfare and keep the banks for running the economy.

It seems like that’s the best solution for our country in order to prevent the Great Depression which will soon hit the Housing Main Street and the Financial Wall Street if the interest rate stays at the 5.25% current level.

Maybe Jim Cramer was right a few weeks ago.

[falcon_eyes]

Should we the USA follow the same economic strategy that Japanese did to combat this? …. which I believe to cut the interest rate all the way to 0% for maintaining the stable stagnant economy welfare and keep the banks for running the economy.

It seems like that’s the best solution for our country in order to prevent the Great Depression which will soon hit the Housing Main Street and the Financial Wall Street if the interest rate stays at the 5.25% current level.

Maybe Jim Cramer was right a few weeks ago.

[falcon_eyes]

Should we the USA follow the same economic strategy that Japanese did to combat this? …. which I believe to cut the interest rate all the way to 0% for maintaining the stable stagnant economy welfare and keep the banks for running the economy.

It seems like that’s the best solution for our country in order to prevent the Great Depression which will soon hit the Housing Main Street and the Financial Wall Street if the interest rate stays at the 5.25% current level.

Maybe Jim Cramer was right a few weeks ago.

[cr]

Cutting rates to 1% may as well have been 0%.

I just think it’s interesting to hear people say prices can’t drop, real estate always goes up, and has never gone down. Thumbs up their asses.

I can’t handle Cramer, he’s going to have a heart attack. He doesn’t add anything but over zealous, after the fact reactions to what already happened. Take a pill dude. Take a dozen of them.

[cr]

Cutting rates to 1% may as well have been 0%.

I just think it’s interesting to hear people say prices can’t drop, real estate always goes up, and has never gone down. Thumbs up their asses.

I can’t handle Cramer, he’s going to have a heart attack. He doesn’t add anything but over zealous, after the fact reactions to what already happened. Take a pill dude. Take a dozen of them.

[cr]

Cutting rates to 1% may as well have been 0%.

I just think it’s interesting to hear people say prices can’t drop, real estate always goes up, and has never gone down. Thumbs up their asses.

I can’t handle Cramer, he’s going to have a heart attack. He doesn’t add anything but over zealous, after the fact reactions to what already happened. Take a pill dude. Take a dozen of them.

[blahblahblah]

The US can’t afford to lower rates like Japan did. One huge difference between the US today and the Japan of the early 90s was that Japan didn’t have the trade deficit that the US does. For the US to avoid bankruptcy, it must import billions daily from overseas creditors. The only way it can do this is by paying a good return. Our monetary policy is effectively set by the countries who finance our extravagant spending.

[blahblahblah]

The US can’t afford to lower rates like Japan did. One huge difference between the US today and the Japan of the early 90s was that Japan didn’t have the trade deficit that the US does. For the US to avoid bankruptcy, it must import billions daily from overseas creditors. The only way it can do this is by paying a good return. Our monetary policy is effectively set by the countries who finance our extravagant spending.

[blahblahblah]

The US can’t afford to lower rates like Japan did. One huge difference between the US today and the Japan of the early 90s was that Japan didn’t have the trade deficit that the US does. For the US to avoid bankruptcy, it must import billions daily from overseas creditors. The only way it can do this is by paying a good return. Our monetary policy is effectively set by the countries who finance our extravagant spending.

[kewp]

I’ve often used Japan as an example as what could happen here.

Lately, I’ve come to realize their may be an important difference. In Japan, for whatever reason, people that could manage to afford their insane mortgages have stuck with them. Or, at least thats the impression I’ve gotten.

Whether this is due to cultural or legal issues, I have no idea.

Here in America, lots and lots of people are just going to toss their keys to the bank rather than become debt slaves. This is going to snowball RE devaluations, as well as force more failures of major lenders.

[kewp]

I’ve often used Japan as an example as what could happen here.

Lately, I’ve come to realize their may be an important difference. In Japan, for whatever reason, people that could manage to afford their insane mortgages have stuck with them. Or, at least thats the impression I’ve gotten.

Whether this is due to cultural or legal issues, I have no idea.

Here in America, lots and lots of people are just going to toss their keys to the bank rather than become debt slaves. This is going to snowball RE devaluations, as well as force more failures of major lenders.

[kewp]

I’ve often used Japan as an example as what could happen here.

Lately, I’ve come to realize their may be an important difference. In Japan, for whatever reason, people that could manage to afford their insane mortgages have stuck with them. Or, at least thats the impression I’ve gotten.

Whether this is due to cultural or legal issues, I have no idea.

Here in America, lots and lots of people are just going to toss their keys to the bank rather than become debt slaves. This is going to snowball RE devaluations, as well as force more failures of major lenders.

[blahblahblah]

kewp, another important difference is that, to my knowledge, the loans in Japan were more traditional. That is to say, you didn’t have the case where someone’s payment doubled from one month to the next as the initial terms expired. These resets are what will force many of these people to turn in the keys, not the fact that they are lazy or corrupt or immoral (although they may well be!)

Also, with the new bankruptcy laws, getting out from under this debt maybe more difficult than in the past.

Just my $0.02…

[blahblahblah]

kewp, another important difference is that, to my knowledge, the loans in Japan were more traditional. That is to say, you didn’t have the case where someone’s payment doubled from one month to the next as the initial terms expired. These resets are what will force many of these people to turn in the keys, not the fact that they are lazy or corrupt or immoral (although they may well be!)

Also, with the new bankruptcy laws, getting out from under this debt maybe more difficult than in the past.

Just my $0.02…

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