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Housing Recovery Lessons From Japan (In One Chart)

Tyler Durden's picture


When real estate prices made a vertiginous ascent in the 1980s Japan the bullish refrain was that there wasn’t enough land. However, Japanese real estate prices, and even those of crowded Tokyo, have glided downwards over the subsequent two decades, accompanied by rents - interrupted by the Karate-Kid-esque 'recovery-on; recovery-off' hope that we have also started to witness in the US. Very low economic growth and a demographic headwind, despite reasonably high employment, have led to a depressed real estate market. Is this a harbinger for the West? And what defines recovery - price, volume, net equity?



Via Goldman Sachs

The value chain for housing, as for so many industries, is broader than you might think (see the chart below), ranging from architects and mortgage providers before a house is built to utilities and insurance once it is completed. But even though the constituents of the chain all share something there are big differences in exposure. For example, some of these business benefit more from a rise in house prices (real estate agents) rather than housing volumes (cement). Similarly, some of them are exposed to basic, mass urban housing (elevators, cranes, lavatories) rather than the more expensive single family properties (landscaping). Some of them enjoy high barriers to entry (commodities), while other sectors are quite fragmented (furnishing).



And while some have to remain local by nature (developers), others find it easier to seek growth in foreign markets (chemicals). Looking at the value chain this way helps us to identify the few pockets of growth in the developing markets, and to broaden the universe we look at to include opportunities in the emerging markets, where the drivers are marginally different.

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Thu, 08/16/2012 - 21:27 | 2712915 RacerX
RacerX's picture

boy, that is some recovery

Thu, 08/16/2012 - 21:43 | 2712946 ACP
ACP's picture

What is not mentioned in the article is that land in Downtown Tokyo was selling for $1 BILLION AN ACRE at the peak of the market.

All the land in Tokyo was "worth" more than all the land in the US at that time.

This bubble was actually worse than that in the US recently, but luckily, CDS wasn't as prevanlent then as it is today. Leave it to Wall St to make a problem 1,000,000X worse to make a few extra bucks.


Thu, 08/16/2012 - 22:43 | 2713087 dlmaniac
dlmaniac's picture

W/o a true job market recovery, there ain't gonna be any housing recovery. Who'd come up with that many steady pay checks to pay mortgage really?

Thu, 08/16/2012 - 22:51 | 2713108 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

dlmaniac, you just hit upon the skeleton in the closet. No jobs means no housing price recovery. When people argue about how the housing market is going up I tell them this. They either get pissed or silent.

Fri, 08/17/2012 - 07:05 | 2713538 Liberator
Liberator's picture

Even those of us who are employed have zero confidence in the future of that employment.  Add in the shadow inventory of 9 million empty homes, and the utter fraud that is the entire financial system, and you get a small appetite for risk.  Buying a house in this environment is highly risky, so the volume is low, capping prices.

Fri, 08/17/2012 - 03:49 | 2713428 chiswickcat
chiswickcat's picture

I seem to recall reading that just the land of the Imperial Palace Gardens in Toykyo was worth more than all the real estate in California during that time. - unbelievabubble. 

Thu, 08/16/2012 - 21:33 | 2712929 reader2010
reader2010's picture

Just tell the Japs, buy land. They ain't make any more of the stuff. 

Thu, 08/16/2012 - 21:47 | 2712958 Zgangsta
Zgangsta's picture

Actually, they've "reclaimed" quite a bit of land over the past 50 years.  Several of their white elephant airports are build on "land" that didn't exist beforehand.

Thu, 08/16/2012 - 21:54 | 2712973 reader2010
reader2010's picture

You forgot to exclude the land that Fukushima took away. 

Thu, 08/16/2012 - 22:10 | 2713016 Zgangsta
Zgangsta's picture

That's all land that robots will build a giant solar energy facility on someday, supplying all of Japan's future energy needs for generations to come!

Thu, 08/16/2012 - 22:25 | 2713051 Bunga Bunga
Bunga Bunga's picture

And what power the robots run on building all that solar phantasia world?

Thu, 08/16/2012 - 23:12 | 2713149 Zgangsta
Zgangsta's picture

Solar power?

Or they could just head to the nuclear plants to refuel.

Fri, 08/17/2012 - 00:10 | 2713232 A Nanny Moose
A Nanny Moose's picture

You cannot even power a decent SSD laptop off a small fucking solar array. Are you fucking shitting me?

Thu, 08/16/2012 - 21:35 | 2712933 tom a taxpayer
tom a taxpayer's picture

Does the chart include the "value chain for housing" in the Fukashima-affected areas?

Thu, 08/16/2012 - 21:56 | 2712977 e-man
e-man's picture

Didn't someone translate David Lereah's book into Japanese?  "Are You Missing the Real Estate Boom?: Why Home Values and Other Real Estate Investments Will Climb Through the End of the Decade - And How to Profit"

Of course in Engrish, it became "Did You Lose All Your Real Estate? Why Home Values Will Continue To Plummet Until Your Monkey Buys You New Underwear. 

Thu, 08/16/2012 - 21:57 | 2712980 Bicycle Repairman
Bicycle Repairman's picture

22 years and counting for Japan.  22 years takes the US out to 2028.  Housing recovery?  Not in this generation.

Game over, man, game over.


Thu, 08/16/2012 - 22:26 | 2713054 Bunga Bunga
Bunga Bunga's picture

Enjoy when desperate boomers need to sell.

Fri, 08/17/2012 - 09:45 | 2713888 andyupnorth
andyupnorth's picture

Interestingly enough, a lot of baby boomers here in Montreal are selling their pre-1980s homes and upgrading into post-2005 homes.

I'm not sure what the ripple effects and consequences will be...

Perhaps their net worth will get decimated if the newer homes drop in price?  And they would not be able to recover in their old age?

Perhaps Montreal real-estate will be the easiest way to preserve wealth in this world's centrally-manipulated economy? (A Canadian equivalent to don't-fight-the-Fed mentality)

Perhaps those who upgraded early will do fine, while those who hang onto the older houses will be the losers because of diverging prices between new and old homes?

Perhaps it will suck for the 20-30 somethings who are priced-out of the newer homes?

Perhaps nothing will happen to Montrealers, house prices will not suffer major dislocations/imbalances/corrections, and money will keep going round and round for the next 30 years?

Fri, 08/17/2012 - 10:38 | 2714066 toady
toady's picture

As with everything else, the boomers will pass the problem on... they'll just squat in their distressed property and will the bill to the kids.

Thu, 08/16/2012 - 22:52 | 2713109 bankruptcylawyer
bankruptcylawyer's picture

what if aliens fought----godzilla?

Thu, 08/16/2012 - 23:10 | 2713142 Bicycle Repairman
Bicycle Repairman's picture

They would not be fighting over Japanese real estate.

Thu, 08/16/2012 - 22:05 | 2712992 divide_by_zero
divide_by_zero's picture

Huh, Goldman totally discounting Ce, Pu, U, and Sr contamination way past Tokyo now

Thu, 08/16/2012 - 22:21 | 2713044 Bunga Bunga
Bunga Bunga's picture

But, but, but Ben can print $trillions, but fuck, Japs do too.

Thu, 08/16/2012 - 22:33 | 2713065 CunnyFunt
CunnyFunt's picture

But Barren Wuffett is "Betting Big on Housing".

Fri, 08/17/2012 - 00:01 | 2713224 Seek2survive
Seek2survive's picture

Betting big on preconstructed homes.  Ones he sees the new lower middle class affording.

Thu, 08/16/2012 - 22:46 | 2713090 CheapBastard
CheapBastard's picture

I saw three more "For Sale" signs up tonight on the way home. So many are simply empty but no signs yet. I just hope they fix the falling fences and keep the vandals out.  Those empty boxes are huge fire hazards. I don't know how the banks can afford insurance on all those empty houses.  It has to be extremely expensive. When I had mine on the market sitting there for 3 months my rates ran up 3x normal. The insurer said soon the rate will rise to 5x normal.

Thu, 08/16/2012 - 23:32 | 2713182 Poor Grogman
Poor Grogman's picture

Just burn em down and build new ones.

That is what Keynes would have done....

Gotta keep that credit flowin....

Fri, 08/17/2012 - 09:10 | 2713764 uncle_vito
uncle_vito's picture

I have always thought that it is better to burn a house that is going to fall into foreclosure other than just walk away.  Seems you have a chance of the insurance paying off your mortgage where you at least preserve your credit rating for your rental.


Trouble is, you would have to leave a pet, mother in law, and valuables inside the house to make the fire look legit.

Fri, 08/17/2012 - 00:35 | 2713270 Schmuck Raker
Schmuck Raker's picture

I would like to make a personal plea to TDTB(Tyler Durdens That Be),

PLEASE refrain from incorporating "Smiley/Frowny' faces AND Goldman Sachs quotes in the same post.

It's...Just. Not. Right.


Like having Mickey Mouse AND Marge Simpson in the same porn animation YouTube video.

Fri, 08/17/2012 - 02:11 | 2713334 donpaulo
donpaulo's picture

Japan is about 75% mountainous so there is a premium on the stuff when its on flat land and near a train station

The markets here are flat and that is mostly (IMO) due to a lack of negotiated prices which is a cultural aspect of the country

When I put in a bid 25% below the ask, the response from the seller was "why ?"



Fri, 08/17/2012 - 08:42 | 2713693 yogibear
yogibear's picture

Plenty of growing vacant storefronts throughout the US. 

One huge once abandoned anchor store is now being used as a Salavation Army thrift.

Maybe Obama can open food pantries in completely empty strip malls.

So many banks with little business all supported by Bernanke and the Federal Reserve money printing system.

Fri, 08/17/2012 - 11:16 | 2714178 jjsilver
jjsilver's picture


How did Toll Brothers survive the housing slump? By keeping buyers' deposits


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