I received an email from a concerned reader last night. The concerned reader wanted to take the time to let me to know that I am entirely wrong, that residential real estate values never go down over the long term, that real estate is and always has been a ‘good investment’. He concluded by telling me that I’m basically just trying to scare off people.
He was partly right. I am trying to scare people, more accurately I’m trying to scare some sense into potential buyers. Consumers are getting a biased message from the media and from real estate professionals. Real estate professionals have a vested interest in keeping the market going strong. The more prices go up, the higher their commision checks get. I, however, have no vested interest in the market, I am standing on the sidelines as an unbiased observer. If I come off as sounding doom-and-gloomy, it’s only because that is what I honestly believe.
So back to me being entirely wrong, and prices never declining. Sorry everyone, I wish it could be that way, but it’s not. Not so long ago a bubble did burst, and real estate values plummetted, and they still haven’t recovered. Where? Japan. When? Late 80’s How Bad? >50% Did Prices Recover Yet? No, not even close….
To help tell my story, I’m going to ask that readers open the following link to an article by Standard and Poor’s Global Fixed Income Research Group, it was just published and contains some good information on the Japan Real Estate Crash. It’s not the only source, you can find quite a bit of information on the Japan Crash through Google or any other search engine.
Go ahead and read through until you get to the chart on Page 2, you’ll know when you find it, if not, it’s the one that looks something like Mount Everest.
Well, there is it, what else can I say? Residential land prices fell over 50% over a 6 year period, and then proceeded to slowly drop and stagnate for some 10 years more. Only recently (and with some fanfare) have prices “blipped” upward, ever so slightly.
So sit, think about this for a while. Look at that asking price again, but this time, cut it in half. Wow, that’s alot of money to lose, a significant risk. I certainly wouldn’t want to be paying a mortgage for a home that isn’t worth half what I paid.
I know, I know, everyone is still saying it can’t happen, it just can’t, not here because “things are different here.” I’ll stand on my soap box and yell out that it can, it did in the past, and it is happening here right now. We’re not so different.
Take some time to research what happened in Japan, and what the experts (those who have no vested interest in the real estate market) are saying about our bubble. Think hard, really think hard about being the greater fool that buys into this market.