How would you like to pay off your 30 year mortgage, only to see that your house had not appreciated in all that time? That’s the reality of Japanese homeowners, in spite of years of low interest rates since their housing bubble burst: (Hat tip Implode-o-meter)
When the Japanese housing bubble burst in 1990 the economy was left in disarray. Hard to believe that this happened 23 years ago but real estate prices in Japan are now at levels last seen in 1983. In other words, thirty years of virtually no real growth in real estate values. In a system conditioned by inflation this is a perfect example of asset deflation. Many simply assume that real estate appreciation is going to happen one way or another but we are now following a low rate policy similar to what the Bank of Japan did with quantitative easing.
Mr. Twist and I lived in Japan back in 1983, and I remember the insanity. The belief was that with a scarcity of buildable land, prices could only go up. They were pioneering the 60 year mortgage at the time. As I recall, you had to prove you had a grandchild in order to qualify. I wonder how many of those grandkids have been willing to keep paying the mortgage?
While housing has picked up somewhat recently, tight credit and a lingering shadow inventory mean that the market still faces uncertainty. Since the U.S. government is following fiscal policies similar to policies enacted by Japan after their bubble burst, it is important to consider that we might suffer from some of the same effects.