Adherents of the ever-popular "They’re Not Making Any More Land" school of real estate valuation would be well advised to read this New York Times piece on the Japanese housing bubble and its aftermath. Unless it becomes more cost-effective to build waterborne cities in the Sea of Japan than it is to build housing developments in Temecula, Japan will remain considerably more land-constrained than Southern California. Yet neither this limited land supply nor Japan’s extremely high population density (one might say that "everyone wants to live in Japan") managed to deliver the nation from a massive, 15-year housing bust that has seen home price declines of up to 50%.

This particular passage has a familiar ring to it:

Even many of those who avoided financial collapse found themselves marooned in homes that they never intended as lifelong residences. For many Japanese homebuyers in the 1980’s, land prices had risen so high that the only places they could afford were far from central Tokyo. Many went deep into debt to buy tiny or shoddily built homes that were two hours away from their offices.

Very few homebuyers I talk to plan to be stuck with their low-quality converted condos or their hour-plus commutes for more than a few years. Almost without fail, their intent is to sell in a few years and use the profits to move up to a bigger/closer place. And yet this may not be their choice to make: a decline in prices would essentially trap such homeowners into staying put.

There are some who will leave, however. Owners who have enough equity to cut and run may do so, and non-traditional mortgage borrowers whose payments increase beyond affordability may be forced out of their homes. Those in the middle of the spectrum, though, might just end up like the gentleman profiled in the NY Times article. He has been effectively trapped in his apartment for 15 years and still owes so much that he expects to be there for another 10. And sadly, he is considered one of the lucky ones.