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The New York Times ran a
feature on the aftermath of Japan's housing bubble. Reading the article,
I was struck by the similarities: the belief that any amount of debt could be
assumed because rising prices would always outstrip the debt; the bidding up
to absurd levels of undesirable properties; the absolute disbelief that
prices could ever fall; the manic bidding frenzies; the urgency on the part of
potential buyers to buy lest they be left behind by a market that would
continue rising forever; exotic financing vehicles.
As a consequence of overpaying,
some property owners have gone bankrupt as the economy went through a
recession and their wages were cut. Others, while not bankrupt, find
themselves stuck in properties that they never liked that much but cannot
sell for more than what they owe on the loan:
But when property prices dropped in Japan, homeowners found themselves saddled with loans far larger than the value of their
real estate. Many fell into bankruptcy, especially those who lost their jobs
or took pay cuts as declining property prices helped to incite a broader
recession. From 1994 to 2003, the number of personal bankruptcies rose sixfold,
to a record high of 242,357, according to the Japanese Supreme Court, which
tracks such data.
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.
Now, after years of
tumbling land prices have made Tokyo more affordable again, few people are
shopping for homes in the distant suburbs. That has led to severe declines in
property values in these outlying areas, leaving many people with homes that
are worth less than the balance on their mortgages from a decade or more ago.
But on the good side,
To be sure, there are several major differences between Japan in the 1980's and the United States today. One is the fact that property prices rose much
faster and more steeply in Japan, partly because speculators used paper
profits from a booming stock market to invest in property, insupportably
leveraging the prices of both higher and higher.
I don't have a reason to doubt
their statistics, but there have been plenty of speculators using paper
profits from housing to invest in more housing, which is almost the
same thing.
Robert Blumen
Robert Blumen is an independent
software developer based in San Francisco, California
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