Response to astonished subscriber; Didn’t Japanese real estate prices fall for over 30 years?

Japan’s demographic trends are moving in the opposite direction to the rest of the world. Ask yourself, where are all these people going to live? The cities are filling up fast.

Asset prices to rise? Same trajectory as Japan? Correct me if I’m wrong, but didn’t  real-estate prices in Japan tumble over 30 yrs ago, and still haven’t really recovered? Deflation is also an on going problem there as well?

Thanks,
Chris in Seattle

I get it. Chris is not alone in his thoughts. If other central banks elsewhere around the globe try to copy the BOJ’s actions, why should they attain anything better? After all, Japan has been shrinking for decades. I get other similar emails as well. I understand that people are astonished with what I write. My email database continues to shrink and the bandwidth fades. Unfortunately, I have been correct so far and I will be in the future. I understand that what I say doesn’t conform to any other source I come across. Yeah, this stuff is a fait accompli and people do not want to hear that; it makes many feel powerless. It’s too depressing.

First, if you are reading this then you probably already assume that bond yields are going to continue to fall. I have been talking about how bond yields would move lower since I started this blog in 2016. No “big bangs” here.

Second, many presenters of Japan’s real estate data have been disingenuous and misleading. Despite Japan’s miserable demographic trends, as we will analyze further, home prices have been rising most all decade. I find that one observation a direct result of BOJ financial engineering.

I am surprised U.S. house prices haven’t risen more in many areas. The growth rate in urban areas has been breathtaking. Since the great recession, the U.S. population has risen by the total population of Australia.

That’s right; in many areas of the United States, real estate is a relative bargain. I run the numbers and it still makes sense. Imagine the impact of more monetary stimulus. The central banks seem to be telling us that they are going to hammer it out until it collapses and that can be in another decade.

We have discussed in the past that land (not real property) prices in Japan, in aggregate, have fallen for a long stretch of time (this article shows that land prices throughout Japan fell for 26 consecutive years). Despite this, house prices have been rising. However, Japan is quite unique as we must take into account the slow death of rural Japan (which has skewed this land price data), the aging of its population, and its dire demographic trends.

Japan’s population is roughly the same as it was in 1990; almost 30 years ago, and it is now falling fast.

Japan has the lowest population growth of all the larger nations (209th overall). Its population has been falling since before the great recession. When Japan’s shrinking pool of young people have little hope for the future, they stop having children and don’t bother buying houses.

Despite this poor backdrop, Japanese home prices continue to rise off their Great Recession lows.

Residential property prices for Japan continue to move back higher, despite their dire demographics

Here is the link to the BIS data that was used to derive the above price chart.

I have been analyzing rural farm-belt house prices here in the United States (not farm land) on an ongoing basis and there are huge areas here where house prices are still selling at steep discounts to their former highs over a decade ago. Why is that? The former vibrant farming towns in the midwest have been decimated in a similar fashion to Japan.

About 127 million people live in Japan. The population could drop below the 100 million mark by 2049, according to the National Institute of Population and Social Security Research.

Japan’s Population Is In Rapid Decline – NPR.org, December 21, 2018

Japan has eight million vacant properties and their population is shrinking

Given the terrible demographic trends, I am absolutely amazed that home prices have trended upward all decade. I tip my hat to the BOJ.

Japan’s home prices may be rising, but the country still has more than 8 million unoccupied properties – so many that owners have taken to giving them away for free.

Many of the homes are dilapidated – a product of the shoddy construction methods used during the postwar housing boom in the 1960s. These prefabricated structures have a lifespan of just 20 to 30 years, according to The Guardian. A number of them are also built on sloping land, making them structurally unsound.

But there are bigger reasons why no one seems interested in buying.

Japan’s population is shrinking, with researchers predicting the loss of around 16 million citizens in a little more than two decades. Its residents are also trending older, meaning there are fewer young people trying to nab property – particularly in suburban or rural areas.

The phenomenon has carried over into urban areas as well. The Japan Times reported that more than one in ten homes in Tokyo are now empty.

Millions of Japanese homes are abandoned, and owners are giving them away for free Business Insider, December 8, 2018

If it weren’t for the BOJ and its heavy intervention, prices would have dropped even further. There is very little immigration into Japan and it still is a relatively closed society.

I know it’s easy to read the dire news stories regarding Japan and their asset bubbles. I get it. It’s easy to extrapolate its results with other nations.

One more thought that I have been warning the reader; The central banks and their charlatan shills and apologists do not seemed to be as concerned about asset bubble formation like they once were as recently as six months ago. I observe their behavior and I am concerned that they are going to attempt to massively inflate asset prices. Should we preorder our Dow 30k hats?

Once again, I apologize to my readers. The world is a grim place and will only get worse and what I write doesn’t make us feel any better.