Parrallels... the Housing Bubble a Do-Over?

Song of the Slave South
Originally uploaded by Phalanx.

Ah… The 1980s… the Days of the Me Generation were in full swing and the Japanese with their super strong Yen were buying up so much property in the native Nippon (and therefore driving up prices) that they went on real estate buying sprees in the United States as well, snapping up such lauded properties as Rockerfeller Center! The Japanese speculators and the Average Akria drove up prices to record levels that are still shocking (in today’s dollars and yen), and real estate leveraged money reached out an bought up companies like Universal Studios and Columbia/Tri-Star and out of real estate . Go-Go Days like that don’t last very long,After the 1987 Stock Market Crash the Japanese Housing bubble took a pinprick that popped the bubble in record time… and when it collapsed the crash was back-breaking to not only an entire generation, but to the proletariat culture of Japan!

Many of us don’t recall or care to recall what happened in Japan throughout the 90s, as we were living high on the hog during the BILL Clinton years and during the makings of the first internet bubble (yes, there will be a second one… don’t you worry). But Japan, after being viewed as the country (and therefore culture) that was going to own the world – what they couldn’t do by military force in the 1930s they were doing by economic force in the 1980s – and this vaunted economic success had a lot of people learning Japanese and studying Japanese management techniques. However, Japan waded through at least 6 to 8 years of recessions, where they would have 3 down quarters to 1 up quarter or other anemic combinations of sputtering economic growth… there was even stagflation and then there was even a deflationary period (where consumers where afraid to spend, because they knew prices would be cheaper the following month). One truly remarkable aspect of the Japanese economic seesaw was that at certain points the Bank of Japan established negative interest rates… yeah, you pay the bank back less than what you borrow!

It was a decidedly difficult time, that was only exacerbated by Alan Greenspan saving the Asian Tigers from collapse in the late 90s (remember that?) and while Japan has emerged from the storm, it’s place in the Global Economy was demoted. Sure they’re still a powerhouse (by sheer numbers), but we don’t look to them as a challenge any more – they’ve been replaced by China and India.

Why talk about Japan? Well, the housing bubble that burst in Japan could be analogous to the future of the housing marketing in the United States; only it might be more dire, as far too many people took out HELOC and used the money to extend their lifestyle (cheaper money than using a credit card) or bought up too much house than they could afford or never should have been in the market for a home in the first place (able to make the mortgage payments, but not the insurance and property taxes).

Are we poised to deal with a housing market, i.e. general economy that oscillates up two quarters, down the next three? What happens when the Baby Boomers retire and dump all their investments? The stock market, at least in the US, is poised for a perpetual zigzagging for the next 5 to 15 years. Sure it’ll go up, but the economy is going to have difficult time sustaining overall growth, except for maybe in the medical sector.

Although optimists will say our economy can withstand just about anything… I wonder if Nero’s advisers thought the same thing, before he torched the place.