patrick.net

And in 2012 the world will end anyway ... ;)

"Well, good news for those waiting to buy a house…"

Hold on a second. For over a year now, patrick.neters have said that low rates are BAD for buyers because it keeps prices high. (eg: You can refinance the rate, but not the purchase price). Low rates cannot be good and bad for buyers at the same time. Choose one.

HousingWatcher says

Hold on a second. For over a year now, patrick.neters have said that low rates are BAD for buyers because it keeps prices high. (eg: You can refinance the rate, but not the purchase price). Low rates cannot be good and bad for buyers at the same time. Choose one.

Well, when your talking about rates as low as they are NOW.. the odds are rates won't be this low again in my lifetime... Or atleast until i'm retired. There are positives and negatives to high interest rates and low interest rates.. It's not the only factor in determining the housing market. For me personally, another 1-2 years of low interest rates is great news.. only because I'm close to having a big enough down payment to buy a decent home in Los Angeles. So it just buys me more time to save... and I can calmly rent for cheap for a few more years and hopefully watch more foreclosures trickle onto the market.

A few people on here are convinced high interest rates go hand in hand with high home prices.... and others are convinced high interest rates will push down home prices. I believe things like unemployment rate, dwindling middle class, and more concentrated wealth at the very top in our society will play a bigger role in where the housing market is headed. When interest rates do rise though... People won't be able to get as large of loans.. so I tend to believe that will put downward pressure on home prices. But who knows what other societal factors will come into play along with high interest rates... If the FED waits too long... will we fall into a trap of hyper-inflation?? if so.. then all bets are off and we all having bigger things to worry about than buying a home.

Japan isn't in a "deflationary collapse"; RE prices plummeted for a few years around 1990 as the bubble burst, and have been basically flat since then. Interest rates are at record lows, and consumer prices have been undergoing small and pleasant declines.

If you weren't around in 1990 and don't have those heady days to compare things to, you really wouldn't have any complaints. An entire generation of young homeowners has been able to save money responsibly (without having their cash ravaged by inflation) and purchase their first homes at reasonable prices.

I hope the US can take a similar route. There's a stability in it that the boom-and-bust cycle, in which consumer prices either go up a little or a lot but never down, doesn't offer.

If you weren’t around in 1990 and don’t have those heady days to compare things to

True enough; I lived in Tokyo 1992-2000 and saw what overcommitment to the property market did to everyone. Soredemo Ie-wo Kaimashita played on American TV in 1991 and I ate it up, but the story it showed was all-too common in that time -- an insane property market flooded with specuvestors and normal people forced to bid as much as they could for housing.

My LL 1995-2000 bought in the late 80s I think and he wasn't doing too well. Rents now where I lived (Minami Azabu) are still the same from 1995, and the yen going from ~150 to ~100 has helped push consumer prices down as imports have become rather cheap, really.

The crash itself has been slow-motion deflation, and people with jobs are doing pretty well now I guess. The problem with Japan is that it's become a two-track society, people with jobs and earning power and everyone else, and the latter category is larger than the former, especially for young people. I haven't been back to Japan since 2002 so i may be wrong here, that's just my impression.

Then why the hell would I want to risk buying now.. I’ll wait until our downpayment grows larger over the next 1 1/2 years and continue renting.

Me too. I'm pretty much resigned to renting for as long as it takes for buying to makes sense again in my market.

Michinaga says

Japan isn’t in a “deflationary collapse”;

Michinaga, I've always found your comments about Japan interesting. I'd have to agree from my armchair point of view. No collapse, just a slow letting out of air. After the big post 80's bust, private debt levels barely budged upwards for 5 years, have been deflating slowly ever since. (http://bit.ly/beu15Z)

I suspect there absolutely would have been a deflationary collapse w/o the massive government spending, and central bank action. Kinda like were doing here. Keynesian stuff. I also suspect it was the Keynesian stuff, trying to smooth out every bump in the economy, that got us to the levels of debt were are now in the first place though.

Big question to me is what is the next big financial/economic shift in a place like Japan? They can't just keep growing sovereign debt forever, and fighting off deflation. Or can they? Do they just stay at ZIRP and government deficit spending, and the flip side of growing household savings, until the end of time? The "end game" of modern financial systems is unclear to me.

E-man says

If interest rate goes down to 2%, RE goes up, too. Hmmmm!!!

Yeah, just like in Japan!!!

Err.....

MarkInSF says

They can’t just keep growing sovereign debt forever

I think the Japanese are immensely wealthy, in a stealthy way --they really hit an economic home run 1960-1985 with all the exports and denying themselves WRT consumption. They have 5X the population of Saudi Arabia but 10X the GDP. They hold $800B in treasury debt that if they could get 5% on would net them $40B/yr in interest -- that will buy 1.5M bbl/day in oil @ $70 per, equivalent to the entire output of a mid-tier oil producer (say Brazil). Their miniscule investment in military capability (more of a jobs program for heavy industry and people who want to play soldier for a living) aids them in having their economy focus on investment in wealth-creation.

They have a lot of debt, but it's all owed to themselves and so a total wash. The major urban areas are BUILT and ready for business. Before I became an uber-capitalist I didn't grok it, but the cityscape of the Tokyo-Kawasaki-Yokohama area is the largest and most impressive agglomeration of real estate capital investment in the world. It's like Dubai but an order of magnitude greater.

As long as Godzilla doesn't come back this century they will reap the benefits of this investment, most of it with decades & decades of useful life left.

People say Japan's demographic decline is going to screw them, but my somewhat bizarre understanding of economics leads me to think they may do OK. They've really wrung the profit out of their medical system so all the old people don't really cost a lot to maintain. Old people already have acquired all the *stuff* they need to live, so their maintenance (outside of medical care) is just some rice and fish, two Japanese economic sectors that need the work anyway.

The disappearance of young people in the economy is a double-edged sword. On the one hand, education and other youth-targeted sectors of the economy are going to continue getting decimated as 2% of each grade aren't replaced every year. On the other hand, young people are the ultimate broken-window fallacy if there's too many people and not enough work.

Japan is far from full employment so I think a little depopulation will do the country good, and I also think depopulation will increase Japanese women's future access to normal career tracks (kinda like in war how a lack of men brought women into the workforce here) -- given the severe underemployment situation their women face I think Japan could depopulate 50% before it started hitting full employment pressures.

The interplay of China and Japan this century is going to be interesting, and I don't pretend to understand what's happening with that. japan is in danger of becoming completely superfluous as a high-tech player and manufacturer this century. Lacking any natural resource base, it has to purchase access via private investment, and now Japan Inc has to contend with the PBC's $2.5T warchest operating in the same arenas. Thinking about the future of the yen-yuan-USD cross just makes my head hurt. The yen at 50 gives Japan more power to buy the stuff it needs, the yen at 150 helps its exports. The yuan will likely move from 7 to ~3 this century, much like the yen moved from 360 to 120 in the last.

But it is all a curious puzzle.

Troy says

Japan is far from full employment so I think a little depopulation will do the country good...I think Japan could depopulate 50% before it started hitting full employment pressures.

You've some serious work to do if your going to win the nobel for computer model of the economy. Declining population also means declining aggregate demand. You seem to be falling in to the trap of thinking there are a scarcity of jobs... the more people the more unemployment because more people are just not needed. If that were true, why wasn't employment 100% in the 1930's depression when we had half as many people?

I thought that interest rates and house prices were inversely related.