Real estate prices are a function of money supply and inflation as well. If we had a deflationary fed policy, i guarantee you real estate would have gone nowhere or down. The case schiller chart's parabolic move is a little skewed incorrectly. look to shadowstats for an explanation (basically the recent inflation index #s are wrong). but the point is made, and it takes many yrs for prices to recover. These things don't bounce back quickly. Japan does certainly have vulnerabilities, and I doubt our chart will look as poor. Just remember: currency and underlying asset valuations are a function of political policy. Japan's story is reflective of its central bank intervention policy as well as cultural values. Deflationary spirals are a death knell for investment - why would anyone want to invest when their businesses will yield less on principal going forward? ie Would you drill for natural gas today at today's exorbitant drilling costs if you thought natural gas price would go down long term going forward? Of course not; you'd barely be able to recover your investment. The US had a deflationary environment net post civil war to early 1900s, and it *was* a problem just as much as the rapid inflation we have now is. This explains past success of US central banks despite all the Ron Paul supporters who bitch about fed policy devaluing the dollar. Japan's lack of aggressive intervention has hurt it. We need to fix things, though ... Nothing a refunneling of defense spending into energy research and energy infrastructure buildout couldn't fix. There's still enough of a wealth base in the US to revive domestic manufacturing, the currency, etc while getting prices under control (by fixing the energy/commodity problem, elimininating cost-push inflationary pressures)
Real estate comes back with a fury. Pent up demand for housing builds up over few years. Just wait and see the game. How long people can live without houses? How long? How long their kids can't have a kitten or a puppy? How long you can tell junior no you can't play in the streets? How long you can hang in your grandma's basement smoking weed and getting bashed at ? How long you can wash your laundry with felons and losers at the laundromat?
I don't believe they stopped spending due to being afraid. Many who bit off more than they could chew due to relaxed and unethical lending practices in combination with the consumers greed to have that big house they couldn't really afford (but qualified for) these people finally reached a point where they stretched themselves so thin that a straw that broke the camels back surfaced...hence default...hence loans that were sold by some banks to others were considered AAA rated are worthless. And it keeps spreading. Some of the biggest institutions have no idea what they are holding and its value.
Pent up demand for housing builds up over few years. Just wait and see the game." I play the game my friend. I play in the yard with the big boys, 2200 acres at 65 million and more. I play in the yard where the market was the hottest. Pent up demand? 5 major land deals have fallen through in the past few months in the area. Builders of "Hotels" Multi family homes and developers have walked away from ripe land deals. They are nervous as hell. 1031 Exchanges have halted. Major track builders have called for a complete, cut and run and PACFIC HOMES has decided to close shop for a while in San Antonio TX. The 7th largest city with FORBES rating it number 5 in the nation for a hot RE makret, LOL. There will be zero demand as it will take decade to shake this flu. The meltdown has just started, has hardly touched the common folk's lives yet. The news you read of "SUB PRIME" is only the start. Real Estate buyers of the last year are toast, they will be upside down in most areas. If you bought with in the last 3, i give you 50/50 chance that you will wash. Hopefully you did not buy in a development where construction has halted and your house is next to an empty lot. Housing is finished. Raw land may still be a tool to hedge against the market, w/ portfolio managers looking for improved land to purchase, to hedge. Not REITS, they are toast. Other than that.....keep believing in your RE as you punch that clock and pay your taxes. EVERYTHING WILL BE OK. Cough Cough Cough
Perhaps you are new to this? Not been in the game 20 years like I am ? I bought my first house 20 years ago for $60,000 ( I still own it) and its worth $600,000 now . Tell me is real estate is bad investment just because you have never been through the downcycle before? I have seen 3 of these and when it gets there it gets bad, but it always comes back with renewed vengeance when it does. Those who can hold on to it become millionaires in no time.
People ( + greedy) consumers stopped buying real estate. They became market speculators. Honey, I can get that house for $50,000 less Oh honey, we can wait another six months prices will be cheaper.... When the consumer stopped buying sellers couldn't sell, fresh sales dropped, dropping valuation and appraisals. When valuation dropped mortgages became a problem, home owners could refinanced their way out of it and defaulted. Than the lenders started going out of business due lack of business and liquidity and shit kept rolling on. Once the consumers realizes its OK to buy these prices are low, they cycle will break and others will follow... But damn this cat...frozen deer in the headlights , lightweight joker when he stops spending everything falls apart and even recessions ensue..
Would you buy a home if you knew it was during a bubble, therefore your new home had more of a chance of depreciating (first), before it eventually appreciated? This means your asking people to wait much longer to gain equity in their homes than is normal appreciation....not to mention the risk they take by buying something that is not worth the money they paid for it. Owing more than something is worth in not good economics. Its been sellers market for the last few years and the tide is changing.
Housing is a necessity. Having a shelter of your own where you can go every night and sleep is not something optional that you can forego for years while the Government whacks you with lots taxes from your paycheck. Its a sound investment that grows and appreciates over time. But when ordinary citizens ( not professional real estate investors like me) become wild card speculators and get greedy they end up on the wrong side of the street. Things did become 5-10% cheaper but you couldn't get financing. Being cash strapped/ hand to mouth existence and having a poor credit and a poor knowledge of real estate, you are no match to many savvy landowners. So what you are doing now ? 1. Sleeping under someone else's roof under their terms. 2. Getting whacked with taxes from your paychecks. 3. Your quality of existence is reduced to shits. 4. You have not acquired any bargains- cause you are cash poor 5. You will drool and your American dreams will be delayed years.