Japanese Crash wasn’t that bad right?

[BradPitt]

Many of us are thinking that drops could be in the magnitude of over 50% in the next 5 years. I personally believe this could happen. But, playing devil’s advocate, according to Dr. Thornberg of UCLA, the japanese had a similar bubble in the early 90’s. But they fell at 2% for about a decade. I imagine they took out all sorts of similar loans also and had an economy that relied on real estate. They probably faced high inventory, foreclosures, and more. What is different between them back then and us now? Could we fall at 2% for the next decade?

Ps. I hope someone can provide numbers and statistics, because I just have general information about the Japanese crash.

[uncle_git]

Considering we are dropping thus far at alsmot 1% a month – no I don’t think it’s likely.

Bear in mind these falls have been happening in primo selling season where sellers are still in denial – now we are into the winter wind down and panic will be starting to settle in for many people who have the sword of Damocles hanging over their heads in the form of ARM adjustments.

Add into that the first waves of ARM adjustments coming this winter / next spring – I think this thing is going to snowball – I suspect it’ll drop 10% YOY by December and accelerate down in the spring.

Also the Japanese had these things called “Savings” that are lacking in US financial culture – no wiggle room here to try and ride out the wave that’s coming.

[LookoutBelow]

My former business partner was there in person during the japanese collapse. It was a lot WORSE than 2% YoY. At the onset, it was a blood bath. 40 million dollar studio condo’s in Tokyo…Went to hell over night. There still vacant today.

Even at 0% interest rates, the japanese wont even consider taking out a loan, they all got burned and the pain from that is still very evident in their financial culture.

Also, their culture accepts and encourages savings. We on the other hand, since 911, have this “Who cares ? we need to live for today” mentality, spending like theres no tomorrow…..Well, guess what ? …Today is tomorrow.. and were still here…ARM’s are the root word for ARMageddon. The price for this free ride of irresponsible lifestyle and largesse is being tallied up, the metaphorical invoices will go out to the unfortunate, beginning in 4th qtr 06 and 07 will be bloody, but not as bloody as 08.

Preserve your credit, conserve your cash, nirvana is close for savvy investors.

[powayseller]

Japan’s residential and commercial property bubbles resulted in large amounts of bad loans for the banks. The bad residential loans were a small amount, and the RE bubble was not tied to consumer spending. So the main problem in Japan was the busted commercial property values, which caused lost money for companies and banks.

As the value of commercial properties fell, companies cut back on spending, reducing economic growth. In Japan, apparently corporate spending is a bigger part of GDP than here, so a cut-back in corporate spending slowed the economy.

So Japan’s corporate sector and banking sector sustained big losses, and their monetary policy made several blunders, which sustained the economic slump.

Our housing bubble is more related to residential real estate, excess employment and inventory in anything related to housing, and excess consumption financed via MBS from the rest of the world. Our slump could be bigger, since our dependence on consumer spending is greater than Japan’s dependence on corporate spending, and we have sucked savings from the rest of the world to create our bubble.

Our brightest economists and Fed leaders studied what went wrong in Japan. They will not make the same monetary mistakes that prolonged Japan’s slump. OTOH, our federal and trade deficits and personal debt are higher than Japan’s so it will be difficult to jump-start our consumption-driven economy.

Yet, the fallout here could be worse, since housing-created wealth has driven GDP growth. Once housing prices stop rising, GDP growth will fall, and turn negative. Add to that bad loans in the hundreds of billions of dollars, a GSE bailout, pension fund bailouts, and you have the possibility of a great depression. I am admitting that instead of a recession, this could be a depression. The question is, what monetary, political, and foreign policy can come to the rescue? So yes, this could be as bad as Japan, or it could be worse.

[davelj]

This is basically a repeat from a previous post…

You have to be careful drawing parallels between our current bubble here in the U.S. and Japan’s bubble of the late-80s. Recall that at the peak of Japan’s bubble, the Nikkei traded at well over 100x peak earnings and there was commercial real estate being valued at $150,000/sq.ft. (you read that right). The few square miles around the Imperial Palace in Tokyo were worth more than the entire state of California. Our bubble isn’t in the same galaxy as the Japanese bubble from a price/value disconnect perspective. And while Japan’s savings rates were (and are) higher, they also obliterated a much larger chunk of their savings when the bubble burst.

We have a credit/asset bubble. And the aftermath will be ugly and painful. But I wouldn’t bet on real estate or stock market values being lower in 15 years than they are today, although investors are probably going to be extremely disappointed with returns on these asset classes over that period.

[BradPitt]

Great answers. Thanks!

The 1st rule of NAR is that we don’t talk about the NAR.
The 2nd rule of NAR is that we don’t talk about the NAR.
3rd rule of NAR is we don’t talk about the housing bubble.

[Author]

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