Looking into the Japanese real estate mirror: Residential home prices in Japan back to levels last seen 30 years ago in spite of near zero percent mortgage rates.

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.  2012 is not a good example to set a baseline for a trend because interest rates were pushed down heavily by the Fed and inventory continues to be held off creating a low level of supply on the market.  Yet when we look at what Americans can afford on a monthly basis, it is virtually locked because household incomes have been stagnant for well over a decade.  The Japanese asset boom and bust provides many parallels to what we should expect in the US.  Many point to 2012 as some sort of divergence but this is more a reflection of aggressive quantitative easing and low inventory more than a sustainable boom because of solid economic and wage growth.

Japan Prices back to 1983 levels

Residential property values in Japan are now back to levels last seen in 1983:

japanese home prices

Japan is an important case example because in 1990, Japan had a GDP of $3.1 trillion and the US was at $5.7 trillion.  Japan for many years was the second largest economy.  But today Japan’s GDP is what it was in 1995.  The Bank of Japan bailed out the banking system with bucket loads of troubled assets and forced rates to incredibly low levels.  You can get mortgages in Japan in the 2 percent range but once again, refer to the first chart.

Some people take the next step and talk about zero percent mortgage rates.  Why speculate when we can look at Japan for an example:

“(BBC) Yoshifumi Tachibana, 32, might be one. He recently bought an apartment worth 60 million yen (£478,782; $766,430) in central Tokyo.

“I was told I’d get the best mortgage rate if paid about 20% up front, so I did,” he says.

“Low interest rates were definitely one of the reasons for me to decide to buy my first home. I borrowed 47 million yen and I am on a 35-year repayment plan with an interest rate of 0.075%.”

But despite such attractive rates, real estate agent Hidetaka Miyazaki says he has not seen an increase in the number of buyers and investors in the last 20 years, especially not in sub-urban areas.”

Essentially what is happening is market manipulation of rates to keep home prices inflated for banks.  In Japan, the support to banks has been nearly unlimited since the real estate bubble burst in 1990.  The Fed is following a very similar road allowing banks to selectively hold off properties from the market while pushing rates lower to keep prices higher.  Since there are zero conditions on bailouts or funding, banks can do what they see fit even in the aftermath of the greatest housing bubble in US history.

Sales from the bottom

Here is an interesting take from economist Dean Baker:

“Both the NYT and USA Today have convinced themselves that house sales are well below their trend level, with the latter telling us that a 5.5 million annual sales rate of existing homes considered healthy. In fact, we are pretty much back to trend levels of sales. In the mid-90s before the bubble began to distort the market, sales averaged about 3.5 million a year. A simple adjustment for the 15 percent population growth over this period would imply an annual sales rate of 4 million existing homes. That is somewhat below the current 4.5 million sales rate.”

Today existing home sales are 5.04 million in November of 2012.  There is massive speculation and much of this is coming from investors, flippers, and foreign money.  Low rates create massive market distortions.  At least in this sense we are different from Japan but this is going on right now.  Will investors continue to be a big part of the market moving forward?  Not long-term.  Yields are already collapsing in many places like Arizona and Las Vegas and investors will pull back.

US and mortgage rates

US home values are now back to prices last seen in 2003.  A lost decade has already occurred:

case shiller 10 city

Keep in mind that in 2003, mortgage rates were in the 6 percent range and now have fallen by over 50 percent thus increasing what Americans can take on to purchase a home.  Home prices have not shot up in a similar fashion because households have not seen any real wage increases:

household income

Someone nailed the prediction on lower mortgage rates here:

“(Daily Wealth, mid-2011) Every year since I can remember, real estate brokers have warned, “You’ve got to buy now… before mortgage rates go up.

Every year, the majority of economists and experts predict that “interest rates simply can’t fall any farther.” And then they do.

I don’t want to make a prediction today. But I do want to point out two facts:

1) For the last 30 years, the trend in interest rates has been down.

2) Mortgage rates in Japan today are less than 2%.

Let’s take a look at each of those facts…

In the 1980s, nobody could imagine a mortgage rate below 10%. In the 1990s, nobody could imagine a mortgage rate below 7%. In the 2000s, nobody could imagine a mortgage rate below 5%. Yet here we are, in 2011… and mortgage rates have spent the last month in the 4.5% range.”

Rates today are in the 3 percent range (a drop of 33 percent from the 4.5 range when the article was written).  The big take away really is that in 2012, much of the boost in prices came from this added leverage that households could take on.  For example, run the numbers for the median US household income of $50,000:

$150,000 mortgage at 4.5%

Principal and Interest =            $760

$150,000 mortgage at 3%

Principal and Interest = $632

$180,000 mortgage at 3%

Principal and Interest = $760

This is the big change here.  All else being equal, that drop from 4.5 percent to 3 percent allowed the typical US household to purchase $30,000 more of a home without any real income growth.  This is all well and good but now, unless real incomes go up, the Fed has to continue to push rates lower or face a stagnant market.  Japan provides a really good example that even with mortgage rates at zero percent, longer-term unless you see real economic activity and productivity pick-up with real wage growth housing values will end up becoming stuck.

While Japan was slower to realize that they had an asset bubble and react, the US acted aggressively and subsequently, our government debt is soaring much faster than Japan:

us government debt

We are already hearing rumblings from within the Fed that bond buying is likely to slow down this year:

“WASHINGTON (MarketWatch) — There was a general sense among Federal Reserve officials that their bond-buying program would last, at most, until the end of the year, according to the minutes from their meeting last month that were released on Thursday.

“Several” Fed officials thought that the central bank would be able to slow or stop the purchases well before December 2013.”

Nationwide we have already seen a lost decade in home prices.  In 2012 home prices did go up.  Yet I see this more as a reflection of low rates and constrained supply instead of it being a healthy market.  Last year, nearly 30 percent of all home sales went to investors so you have new home buyers and families competing with these groups to bid home prices higher. Japan’s real estate values are back to levels last seen 30 years ago.  It should be obvious to people that with real household incomes stagnant, that most of this growth is occurring because of other forces pushing prices up in the short-term.

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50 Responses to “Looking into the Japanese real estate mirror: Residential home prices in Japan back to levels last seen 30 years ago in spite of near zero percent mortgage rates.”

  • One should be careful about extrapolating the Japanese housing experience over the US housing market. When analyzed in terms of aggregate demand and demographics there is no reason to have expected another post 1980 run up in Japanese real estate.

    Japan’s population was 117 M in 1980 and 128 M in 2010. One would not expect much increase in aggregate demand with this low 30 year growth rate. Going forward aggregate demand gets evern worse. The Japanese population has peaked and is expected to decrease to 100 M by 2050 and perhaps as low as 67 M by 2100.

    By contrast, the US population increased from 225 M from 1980 to 310 M in 2010. Going forward population projections are 400 M and 625 M by 2050 and 2100 respectively. US projections assume that the future immigration rates will be similar to historical immigration rates.

    From demagraphics alone, one would expect few and most likely decreasing household formations in Japan going forward and the opposite trend in the US. I think it is a fair bet that US housing prices will increase, mirroring inflation, going forward

    • Fed reserve are buying all the mortgage securities, and currently hold about a trillion MBS. You can bet those are junk that big banks don’t want, and thats why it ended up on Fed balance sheet. So all those foreclosures from the big banks may have been paid for by our Fed. The Fed doesn’t even print money, it just keystrokes on the key board. Even Fed prints, the $100 bill costs less than a nickel. The value of the bill is arbitrarily designated by the Fed/treasury, and they can produce as much as they want. To keep saying or hoping housing will crash is simply not realistic. The big banks were at the brink of collapse, but saved by the Fed and its limitless balance sheet. Fed and banks and treasury and government are all together in this. They keep talking about cutting, cutting, but they never cut. Ever since Fed reserve was created in the early century, Inflation went up 30 times so far. So, we will have inflation, to inflate away all the debt we have, including your saving account. That’s the only way they know, and that’s the only way out. Imagine everything is 10 times more expensive, including your wage, will life not go on?

      • I glanced Fed balance sheet and there is about a trillion MBS. Assuming average house is 200k, a trillion buys 5 million houses. Fed is still buying. Maybe Fed is your landlord, if you are renting, and maybe Fed is the real owner of my house which I thought I own. Am I missing anything here?

      • OutofCalifornia

        Yes, life will go on, but probably not much of it in America, and it will be of low-quality.

        You are overlooking many factors: Social unrest, the proles getting more and more fed up with their decreasing quality of life, deindustrialization as in jobs being given to Chinese near-slaves, and most of all, you forget America is a pawn in a much larger game. If other nations stopped buying our debt we would be brought closer to a final crash and burn. Printing unlimited money only works as long as people believe we are an invincible superpower, which they did for a while, due to our brilliant propaganda that makes Russian communist propaganda look lame. We Americans are always the good guys, the world’s policemen, we must spread our form of “freedom” everywhere! But that is all over. Now the whole world knows this giant had feet of clay.

        This brings up many other factors or potential “black swans” if you will. Just to name one — the Eurozone. The Eurozone was created by globalist true believers in the American model. When Europeans realize they are being sold out and prices for their goods are being kept high so as to make America more competitive in the international marketplace, what do you think the result will be? Spain is utterly ruined thanks to its capitulation to the American way, that being fiat money a-go-go. When people get poor and have no hope, they tend to get angry. When they get angry, then a dictator tends to arise who changes the game, or there are revolutions… Anyway, the Eurozone is highly unstable, and the end of the Eurozone would massively affect America, since Europe would then be restored as a real competitor to us, whereas now they are tied in knots by their hapless Thatcher-ite leaders.

        Also: Right now China helps prop us up so they can sell us our cheap goods, but what happens when that becomes counterproductive? So no, printing money out of thin air forever isn’t the magic ticket. It worked because of a multitude of factors, some skulduggerous, that put America TEMPORARILY on top, and whereby we convinced the world that they must do things our way. Our kind of thinking is like that of a prostitute who just assumes that she will always be 24 years old and beautiful and it will be easy to make money; then, due to her total lack of foresight and imagination, she is caught off guard when she turns into a hard-faced, hideous crone. She is so arrogant, however, that she can’t acknowledge reality, and eventually she ends up on the street-corner talking to herself, hopelessly insane. Get the picture? This whole crisis is much, much bigger even than what Dr. Housing Bubble readers typically see.

    • I think we have to consider the proportion of land to people, so the 10 million increase in Japan’s popultation versus the 100 million increase in the U.S. population, on a per useable acre basis changes the conclusion.

  • I now think that the government is going to let interest rates go well below 3% indefinitely. I would not be surprised at below 1% where savers pay the bank to have their money in the bank. It would not shock me.

  • Typical bubbles do not just burst and hit a bottom in one ago. Usually one gets two to three post bubble rallies. Let us do the NASDAQ composite for hi-tech bubble circa 2000 March. First bottom in was in late 2002 at about 1100 from a peak in March 2000 of 5200. Then we had a strong rally for about 5 years taking it to 2800 top in late 2007.
    Note the tremendous move 2800/1100 = 254%. Then back down in March 2009 to 1265.

    So US housing top in May 2006 burst to go down about 35%. We could easily rally from here to say a gain of 30%. So start at 100 at the top. Drop to 65 which we have already done. Rally 30% x 65 = about 85 Then hit another 30% down to about 60. The rally to 85 could last easily about 3 to 4 years. So if the bottom was late 2010. We could rally to late 2013 or 2014. Then down to 60 by 2016 to 2018. That could be the final bottom or we could have another rally and bottom for a possible bottom around 2020 or beyond. What is going on is classic bubble dynamics.

    Typical bubbles need two to three bottoms before a sustained multi-year rally is initiated. Why did Japanese real-estate not have any secondary rallies? Demographics was a huge drag for them. Demographics is in our favor. There are other differences in the setup of our vs. their financial markets. So our bubble dynamics is likely to be more typical.

    Lemmings should completely ignore what is written by me here. Should jump in
    the market head-over-foot fully leveraged. The good Dr. HB has been warning like
    Cassandra. However, like her, he is ignored though correct.

    I have a request for the Dr. Please show us some of this bubble dynamics with
    maybe “Tulip Mania” or other real-estate bubble data from the past. The Japanese chart is too unique with no post bubble rallies.

    • I agree – too many investors and would – be home buyers have never heard of the hallowed “dead cat bounce” effect after bubbles have burst. While it’s an accurate axiom that all RE is local, macro trends assert themselves at the endgame.

  • Sounds like we will have 2003 prices +/- 15% , until 2023.

  • When looking at Japan for lessons, it is important to keep in mind the fact that birthrates and household formation rates are much lower there as compared to here.

    Nevertheless, we have now repeated the main policy error which the Japanese made. Specifically, the Japanese refused to require their banks to recognize their losses, foreclose, and sell their REO to clear the market. The Japanese central bank provided unlimited liquidity to banks and allowed banks to “extend and pretend” indefinitely. As a result, the markets did not clear and no one had enough confidence in prices to make new investments. After arrogantly telling the Japanese they were fools for following this idiotic policy, we did exactly the same thing ourselves and got exactly the same result.

    • I would be careful to count too much on demographics. There’s plenty of countries with all kinds of family formations where house purchases are very low. You need both family formation along with incomes. Interestingly, in the developed world, when family formation drops with income. So it’s a double whammy. I would track income in the 25 to 35 age bracket to see if there’s a cause and effect relationship to home purchasing.

  • I would agree that we are/have been mirroring the Japanese but because of some important differences there will be a huge compression in the time frame.

    As pointed out, birth rates are less, they actually have a shrinking population and more importantly they don’t allow immigration of any real magnitude and they certainly don’t have population growth from illegal immigration. In summary, their population is shrinking while ours is growing. That reason alone is very negative for housing in Japan.

    Also, the mindset of Americans about debt are completely different. It may be stereotypical to say and American will be happy to borrow someone elses money given the chance, while a Japanese would be much more reserved about doing the same but it is the absolute truth. And that would be the same on a Governmental level.

    Oil at near a 100 and commodities in general still elevated and Gold and Silver say inflation is something to worry about. I have a real problem believing that a dollar will buy you more 10 years from now (excluding in housing since realestate prices are not part of the CPI anyway, just rents) than it does today but until then, the idea we have 20 or 30 years of deflation ahead I do not believe .

    All that said, since housing prices are so heavily inflated, I agree housing prices, at least in the bubble markets, are unsustainable and are likely to deflate..

    • I was going to say, earlier, when I first meant to post a comment here… that I agree we won’t have 20-30 years of inflation… Simply because I think Americans are far more impatient than the Japanese, and just simply won’t put up with it. ha ha.

      But then Downton Abbey came on, and I wound up watching Newsline afterward, where they showed a bit with the Japanese Prime Minister saying something along the lines of leading Japan into growth…
      Then I saw this…
      http://www.cepr.net/index.php/op-eds-&-columns/op-eds-&-columns/will-japan-lead-the-path-away-from-the-fiscal-cliff

      And my first thought was… how nifty that maybe there’ll be a guinea pig in an experiment to learn from.
      My second thought was… maybe Dr. Housing Bubble will soon have new & different graphs to present. :D

      At any rate, if nothing that’s going on works here… I’m betting that the American public will demand something else be tried… long before 30 years passes.

      Though I’m sure that more bubbles will burst, housing prices will see some more insanity at some level and in some places, and a lot of lives will be ruined, before that comes to pass.

  • This, from NY Times (12/26/12): http://www.nytimes.com/2012/12/27/greathomesanddestinations/real-estate-in-japan.html?_r=0

    “Japan is a buyers’ market, said Erik Oskamp, the owner of Akasaka Real Estate in Tokyo. “Owning property in Tokyo is probably half or a third of the monthly price than if you rent,” he said, “and still people are not buying; that’s how depressed the market is. You always have to explain to people, ‘We’re still here, Japan still exists.’ “

    Instead of comparing Japan with the U.S., maybe it’s more instructive to compare LA (or NY) with Tokyo. What’s startling is that owning is supposedly half or a third of rent in Tokyo. This is absolutely a function of PSYCHOLOGY, since, economically, it makes no sense.

  • Is not possible to have both? A deflationary response in the housing market with an inflationary response in everyday items like food & gas? This could be the response to the devaluation of the dollar.

    • It is possible to have both because that is what we have now. The short-term expansions in the (generally deflating housing bubble) is being manipulated–as was the original bubble–by controlling the interest rates and supply of available housing. Only insiders will know when is the best time to sell or buy if flipping (speculation) is your goal.

      The rest of us are (at the same time) being slowly taxed through the inflation rate for the other essentials of life: food, clothing, and transpiration (now essential since you need transportation to hold a job).

      • Absolutely, we have both. Almost anything that the govt is promoting has an inflationary bias since they can pass all kinds of laws and create cheap money to help it increase.

        There’s also products with global demand, like oil, where even though the US has been steadily declining its consumption since 2006, the global demand has been growing more than enough to make up the difference and then some.

        You want to see deflation in something? Try recreational boating. Especially where there’s no loans available for purchases. A middle class toy with no govt support….crashing hard!!!

    • Sure. If things are perceived to be so short-term bad that people rush to sell assets to raise cash to cover daily expenses, you could see food, gas, and rents soar into hyperinflation while house prices fall.

  • Well, LA is much younger than Japan because of the hispanic factor. Now if La had the demograhics of 1980 it average age would be 42, since non-hispanc whites are 42 but Mexicans and Central Americans are younger since they had more kids in the 1990′s and 2000′s.Hispanc birthrate is currently 2.35 versus 1.8 for non-hispanic whites and asians are only 1.7.

  • Our demographics will play a huge role in this going forward. With all the baby boomers unable or unwilling to save for retirement, I think a good use for all those McMansions would be to turn them into modern day boarding houses, since a lot of americans will be lucky if they can even afford that at retirement

    • Boomers do turn Mc Mansions into retirement homes. With a 50% divorce rate there are boomer siblings making homes together. If you can’t get along with your spouse you usually end up renting from your sister or brother with all the room in the nice big house.

    • I have definitely wondering if that’s happening places… or if will wind up happening… if the McMansions will be bought (or rented) by mulit-family multi-generational groups.

      I have a family member who was a real estate agent in the Temecula area who worked over a period of a few years with some families that purchased houses for multi-generations & extended family members to live in, and would periodically buy more property to spread out the occupants as needed.
      These were Spanish speaking families whose elders were generally Hispanic immigrants.

      It’s not considered undesirable among cultures in India & Latin America, etc, to live in multi-generation households with extended families. (Isolation of nuclear family units seems to be a very American & Western European cultural preference.)

      And I’ve read that Indian immigration has been on the rise significantly. (Not only that but I can see it visibly in my own community, though I don’t know if that’s the case in S.California.) Indian landlords in our area seem to tend to buy apartment buildings… or even build them… but that maybe will shift with the availability of different kinds of real estate?

  • Just got off the phone with my car insurance guy. Annual premium went up $400, which is 20%. We have no voilations and are in our 30′s, and our premium is “quite average”. He said it’s from CA paying out more than they take in insurance, and it’s going up STATEWIDE. As in for everybody.

    So taxes are up, insurance is up, food is going up, and housing prices are rising again. My wage is NOT.

    My family was out here for Christmas and sais that yes the weather is nice, but other than that we are nuts for living here. He told me how much cheaper everything is for them, and how many people are hiring where we are from, etc etc. And wages are not very much lower than these “vaunted” higher CA wages which make up nowhere near the cost of living, unless you are one of the chosen few in your field that really garners that kind of wage.

    And by the way, from last weeks article, on top of all this I commute 70 miles each way from the coast to the IE because I do not believe in over extending myself as so many CA people do, and fail. (At least I can sleep at night on that one).

    I’m just so flippin fed up with this place I scream about it, I can’t get out of here fast enough

    • All the reasons you mention are why I’m staying in CA. The crash is inevitable and there will be money to be made after the crash. Granted I wish I had got in on the flip property I bid on during this mini-bubble, otherwise I’m content. Waiting it out as they say…

    • We are in contract now on a house we are buying from some miltary friends of ours who are transferring, no agents, best thing we could have ever done…inventory is tight and prices rising, with this we had zero competiton. With that being said, my husband and I looked at each other yesterday and agreed if the prices continue to increase, we may just sell in 6 months and get the heck of here, we are fed up too! He has a job offer standing in Texas with the same pay he makes here in Ca, only thing holding us here is my family.

  • Too-Big-To-Fail Banks Gamble With Bernanke Bucks

    With the boundaries between Goldman Sachs, Treasury, the Fed and the administration virtually disappearing; the big banks’ Democratic and Republican handmaidens running interference; and the media distracted while pursuing pissant stories about debit card fees, consumer protection rules, and shareholder gadfly proxy access; all is hunky dory in TBTF land.

    But what happens to all that freshly printed money after it gets parked on bank balance sheets if it’s not loaned to businesses and consumers?

    Perhaps we could sleep at night if it just sat there, as a cushion against the recession that lies ahead.
    But unfortunately, the “banks” appear to have flocked back to the derivatives casino, confident that as officially recognized TBTF institutions they are free to privatize gains, gorging on bonuses while the sun shines, knowing they can socialize their inevitable losses.

    To see how much of your money they are playing with, take a look at the scariest economic chart of 2012.

    “Banks” are supposed to be chartered to take in deposits and use them to make loans. Under the magic of fractional reserve banking, only a percentage of the deposited money needs to be retained as ready reserves, while the rest is put to work in the real economy.

    And yet here we have a “banking system” that for the first time in history has $2 trillion more in deposits than outstanding loans!

  • Well, this would make it hard not only on the low skilled foreign born but native born. I read that by 2025 a lot of service work could be done by robots. On the farm Jose would be replaced by a robot. That means immirgants from both Mexico and Central America would not have a job here as much as they do today. Hopefully their economies would develop better, most people here are holding their breath over that statement. As for the high skilled immirgants they probably could still do someting here.

    • Cynthia, there seems to be an on-going fascination….have you been gazing out at lithe Carlos while he trims your neighbor’s bushes?

    • Do the research and the dirty little secret is that robots have already taken 10X more Amercian jobs than China. I’m a capitalist but I also think that perhaps it’s just part of the ecosystem to have humans work, and maybe that needs to be legislated.

      Even Foxconn in China is going robotic over the next few years. Chinese labor “costs too much”.

      Terminator 2….

    • Robots are not coming. It is cheaper to hire my countrymen who come here to work at a wage that you can not refuse. I know that cheap wages hinder technological innovation because it is cheaper for the business to hire an undocumented worker(endless supply) than to invest money in higher technology.

      • Robots are on their way, José. The biggest competitor to Mexico’s salad tomato growers here in the Sacramento, California region (once called Sacratomato) isn’t local produce but greenhouse tomatoes grown in – wait for it – Canada. Why? Because there’s little to no salad tomato crop here, machine picking is too hard on ‘em. A field full of pickers sweating in the sun is replaced by just a few people on machines.

        Year after year, crop by crop, new machines and plants bred for mechanical harvesting methods drive farmers to switch over to crops that can be machine harvested. Machines don’t take bathroom breaks, don’t need Port-A-Potties to be trucked out to the field, don’t give fake SS numbers, don’t collect overtime pay, and don’t strike at harvest time. When you see a harvester in the orchard or field say, “Thank you, Cesar Chavez!”

        P.S. Over half of farm laborers are born in the US to parents who are US citizens. Mexican and other south-of-the-border migrant labor can walk home when there’s not enough harvest time jobs to support them. What will the Americans do?

  • Speaking of McMansions for multi-gen families – I am actively seeking to purchase a house in Western LA area and it does surprise me how some of the single story houses I have looked at have had several bedrooms and a bathroom added on to them, effectively killing the backyard but giving more living space. Some of the floorplans have been made to almost splinter off a new living section of bedrooms and bathrooms but with 1 kitchen remaining. Many of these were done per city code, which is why they still have only 1 kitchen for single family residential zoning laws.

  • Will Japan Lead the Path Away from the Fiscal Cliff?

    What is new is Abe’s stated agenda. Abe wants to get Japan off its two-decade-long path of near stagnation, promising a policy of vigorous stimulus. There are two main parts to this policy. First, he promises to embark on another round of infrastructure spending, with the goal being the direct creation of tens of thousands of jobs.

    Perhaps more importantly, he wants Japan’s central bank to explicitly target a higher rate of inflation. If they follow Abe’s recipe, the central bank will commit itself to raising the inflation rate to 2.0 percent, buying as many Japanese government bonds or other assets as necessary to bring about this result. The goal is to reduce the real interest rate: the difference between the nominal interest rate that people actually pay on borrowed money and the rate of inflation.

    If Abe is allowed to carry through his policy and it proves successful, it will provide a great example for the United States, Europe, and other regions still suffering the effects of the economic collapse in 2008. Of course these countries have not always been able or willing to learn lessons from other experiments.

    (If it doesn’t, should we be surprised?)

  • Obviously, I must have forgotten I got that link from “watermelonpunch” above

  • I dont think I am waiting this one out. Between now and 2016, I will have layed out $1500 x 36 months = $54K in rent. Not to mention my landlords cpi of 5% per year = approx. $56K in rent. My federal witholding by becoming a homeowner decreases by $850 per month = $10K per year. $850 per month alone is 40% of the Princ+Int on a $500K home. After 3 years I will have some equity, not my landlord. Is there a chance that prices could collapse again? perhaps but if there are fluctuations each year of +/- 5% I am not interested in losing $56K in rent to find out if I should have waited.

    • Ding ding ding!

      Your exactly correct. Forget the math, but your piece of mind. If you feel your wasting money renting, then you are!

      • “Your exactly correct. Forget the math, but your piece of mind. If you feel your wasting money renting, then you are!”

        *forget* and *feel*

        Wow, just wow.

    • QE abyss, I think you’re mixing apples and oranges. You state $1500 rent for the next three years. Did you sign a three year lease? There is plenty of anecdotal evidence out there that rents are going up. The real estate market is currently unbalanced and pressure is on renters. You are comparing your rent payment to purchasing a 500K house. For $1500/month rent you are likely getting a 1 bedroom apartment (maybe a 2 bedroom). A 500K house will likely give you a 3/2 SFR with garage and yard (not in ultra premium areas, but in many decent areas). The extra space, amenities, privacy, etc have to count for something. Are you including this in your equation?

      • Hello Mr. Lord Blankfein: You are correct, I do NOT have a 3 year rental agreement, i.e. rents will go up on me, I estimate 5% per year but could be higher. And yes, buying a home puts me and my girlfriend in a much sweeter position as far as lifestyle – garden, garage, extra bedroom for my office and her office, etc. Thanks for asking!

      • QE Abyss, I misread your post. You said you are NOT waiting this one out…I guess that means you crunched the numbers and they point to buying. Good for you, I have been preaching this for sometime here. If you have a good downpayment (20%+) and excellent credit, it makes sense to buy based purely on being at rental parity or better. As has been mentioned here umpteen times, everything is going up in price (food, energy, rent, tuition, healthcare, insurance, etc) and I see no end to this. It’s no surprise people are flocking to the safety of housing and locking in insanely low costs for the next 15 to 30 years. You have to live somewhere and at least you have some control over those monthly costs by buying…the same can’t be said for renting.

        Good luck out there!

    • **Sigh** More idiotic rationalizations from the stupid masses.

      You need to include the AUTOMATIC 6+% in transactional costs. At $500K for the house, this is at least $30K. As typical with your kind, you will roll this into the loan, thus yielding your house balance sheet as INSOLVANT. And that is just on a nominal basis. In real terms, the losses would be eye-watering. You also need to understand mortgages – the bulk of the nut in the early years goes towards the interest.

      So, put down the crack pipe and repeat after me: you will not build “equity” in three years.

      You need to realize that housing is mainly an inverse function of interest rates. Raise rates and house prices fall; lower rates, house prices rise. It’s that simple. The private FED controls the entire curve now, with QE3-4-EVA. Rates will NOT go much lower. Too much risk is getting mispriced. These low rates will not last more than 2-4 years from today (or sooned – recall that interest follows an exponential function!) It’s purely a matter of confidence in the dollar.

      If (not really a matter of if, but when) investors desert the dollar and its exchange value falls, the price of the financial instruments that the FED’s purchases are supporting will also fall, and interest rates will rise. The only way the FED could support the dollar would be to raise interest rates. In that event, bond holders would be wiped out, homeowners would be wiped out, and the interest charges on the government’s debt would explode.

      The difference between the rich and the poor is NOT MONEY. It is the innate ability to hang onto it, which you clearly lack.

      • Finally, a post with some sense.

        Two more critical points, a) it’s not smart to bank on future tax implications since these can change on the whims of a political storm, b) just like home prices, rents don’t always go up.

  • Perhaps there are still some saner heads attempting to prevail at the Fed:

    http://www.nytimes.com/2013/01/09/business/a-bold-dissenter-at-the-fed-hoping-his-doubts-are-wrong.html?partner=rss&emc=rss&smid=tw-nytimes&_r=2&

    What’s hilarious (but not really) is the comment that while many of the Fed Governors are trying to push back their Chairman’s insane rush to oblivion, the Chairman still believes that his monetary largesse is helping to keep the economy in “recovery.” What? A stimulus for a recovery that’s allegedly still going on for six years? Just craziness.

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