Mr Bubble's bad news from Japan

[Taro Toporific]

[floatr][/floatr]Could Japan cause a US house price crash?
moneyweek.com, Tuesday 21st March 2006
The world's central banks are tightening interest rates in unison - and when that happens, things tend to go wrong for the global economy. In the US, house repossessions are rising while sales are slowing...
The Federal Reserve is likely to keep raising rates until prices have flattened - but with Japan about to raise rates too, the danger is that the Fed will go too far. To find out why this means tough times ahead for both the housing market and share prices, see: Could Japan cause a US house price crash?
...in short, all three major central banks, and a lot of smaller central banks, are going to either tighten their money supply or continue to raise rates or both. Yet, investors and banks continue to lend money and demand less risk premium. Such a combination does not usually end in happiness. It reminds me of Mad Magazine's Alfred E. Neuman. "What? Me Worry?" When central banks tighten simultaneously, bad things can happen. Think of the tightening in 1997 and then the Asian and Russian problems in 1998, or the serious tightening in 1999 and 2000 and the stock market corrections in 2001-2003...more...

[Big Booger]

So if you are not in the housing industry, not planning on buying or selling a house, how does this affect you?

[Taro Toporific]

So if you are not in the housing industry, not planning on buying or selling a house, how does this affect you?

It effects your savings, a lot.

Many, if not most, FG folks are working Japan to save money for the future.

Such savings are typically used to buy a house. Japan just may cause the housing bubble in England, US, Canada etc. to pop, cause mortage interest rates to rise making harder to buy a house, or cause a slow spiral down of housing prices (which would mean much cheaper prices overseas in the longer term, say in 5 years).

Likewise, FGs who are saving money in Japan to start a business back home ought to think twice about their plans. Investment in stocks and especially bonds will be wildly affected.

FInally, this signals a bottom for the "Lost Decade" of Japan that has lasted the past 15 years. If the Japanese interest rate increase works, happy dayz are here again and we can all be Bubble Pimpdaddies again. If it doesn't, Japan will have stagflation and the price of anime and manga will rise, services like Maid Cafes will be high, but wages will continue to be flat (or be depressed).

[Big Booger]

I dread stagflation... Just say no to Stagflation! This service has been brought to you by the better business bureau of underwear deflation.

[homesweethome]

It effects your savings, a lot.

Many, if not most, FG folks are working Japan to save money for the future.

Such savings are typically used to buy a house. Japan just may cause the housing bubble in England, US, Canada etc. to pop, cause mortage interest rates to rise making harder to buy a house, or cause a slow spiral down of housing prices (which would mean much cheaper prices overseas in the longer term, say in 5 years).

Likewise, FGs who are saving money in Japan to start a business back home ought to think twice about their plans. Investment in stocks and especially bonds will be wildly affected.

FInally, this signals a bottom for the "Lost Decade" of Japan that has lasted the past 15 years. If the Japanese interest rate increase works, happy dayz are here again and we can all be Bubble Pimpdaddies again. If it doesn't, Japan will have stagflation and the price of anime and manga will rise, services like Maid Cafes will be high, but wages will continue to be flat (or be depressed).

I know lot's of FG's just want to work a couple of years in J country and take everything back home to start a real life someplace else. No Problemo

What I want to know, being a real estate owner in Japan, with really no plans to leave, why does it seem that the money they want to lend me is so easy now? I'm talking about real banks! Not Yaks. Of course it involves mortages and loans, but is the beginning of a 'bubble' in sight?

I get suspicious when people want to 'lend' somebody like ME money.

[aljones15]

Taken that's japan housing prices have fallen for awhile now maybe FG's best option is to go ahead and buy the house/apartment in Japan before prices begin to rise. Then sell when the bubble or raising economy hits hardcore. After all the U.S. is pretty fucked right now economically. While it has a tendency to amazingly come out of deficiets etc and it's growth is high anyone who's been reading the economist for last few months can note that the u.s. economic growth means more imports means more deficeit etc. Fuck the U.S. right now much like China it's a bit to chancey to invest in.

[Kuang_Grade]

So if you are not in the housing industry, not planning on buying or selling a house, how does this affect you?

It has been a while since my International Econ classes and I might not have this 100% right but I'll give it stab... With rates so low in Japan, a lot of that money has been flowing overseas in search of something more than .00001% interest...that cash has resulted in lower interest rates and also helped prop up the dollar. With rates going up (and many newer house loans are based variable rate loans, which means the rates can go up over time). Rates go up, people pay more interest, which leaves less money for other things...people buy fewer things, which means fewer jobs, more people lose their houses, ect. With economic slowdown, the dollar looks less favorable to foreign investors in US bonds(used to finance the US debt), which results in the dollar dropping and foreign goods become more expensive and the US has to pay higher rates to finance its debt, which ultimately means less money around to pay for things like guns and butter, which will likely result in a tax increase at some stage down the road.

[Yorik]

I don't want to sound like an asshole, but for me this is a good thing.. Interests rates go up, people can;t afford their repayments, hosues go for sale, prices lower, I buy up and because the interest rates are higher I get a larger tax offset which is good.. I buy house for investment purposes so I can negative gear the interest repayments. The Australian Tax Office has some nice little things to it..

However for those that lose houses or are cash strapped, then it is bad.. I know it isn't nice to take advantage of others misfortune, but it is the way that the cycle works, and things begin to right themselves again.

[Taro Toporific]

I
What I want to know, being a real estate owner in Japan, with really no plans to leave, why does it seem that the money they want to lend me is so easy now? I'm talking about real banks! Not Yaks. Of course it involves mortages and loans, but is the beginning of a 'bubble' in sight?

I get suspicious when people want to 'lend' somebody like ME money.

In just the past two years, Japanese banks have "discovered" the market for totally f'ed gaijin-for-life mortages. Japanese banks that just to puke when a gaijin walked in the door, now have found they can always make a mortage sale to a gaijin. Many Japanese banks have HUGE piles of cash with nothing to invest in---The new gaijin mortage market that has appeared in past two years is loan officer's wet dream. Just 5 years ago, Tokyo banks were turning down most FGs like the editor of Time Magazine Asia (8+ years in Japan, 10+ million yen/yr income, Japanese speaking). Now, this is the banks' new final frontier.

[Vegas guy]

I am in the real estate business and it seems thousands of people move here every month trying to get some business going, or they love all the entertainment and GAMBLING going on here. It seems that people still are buying homes and condos here, just not as fast.

[GomiGirl]

I am in the real estate business and it seems thousands of people move here every month trying to get some business going, or they love all the entertainment and GAMBLING going on here. It seems that people still are buying homes and condos here, just not as fast.

OMG have you got a bridge for sale too? I want one!!!!

[FG Lurker]

Just 5 years ago, Tokyo banks were turning down most FGs like the editor of Time Magazine Asia (8+ years in Japan, 10+ million yen/yr income, Japanese speaking). Now, this is the banks' new final frontier.

I hope the editor of Time Magazine Asia is making more than 10mil a year!

Last year I had no problem getting a loan. UFJ nearly threw 40million yen at me, even giving a 1% discount off their normal rate. It was so easy it was kinda weird.

[GomiGirl]

Last year I had no problem getting a loan. UFJ nearly threw 40million yen at me, even giving a 1% discount off their normal rate. It was so easy it was kinda weird.

how much deposit in cash did you have?

[FG Lurker]

how much deposit in cash did you have?

There was no requirement for a downpayment. I did pay money down, but they were perfectly happy to give me a loan for the entire amount...

[homesweethome]

There was no requirement for a downpayment. I did pay money down, but they were perfectly happy to give me a loan for the entire amount...

I never took out a loan at a bank before but the bank I do business with came to me and offered to loan me almost any amount I wanted (of course mortgaging the property I already own full and clear). I said thanks, but, I'll think about it. Then when a property came up for sale that I was interested in I offered to put down half and ask the bank to finance half (about 15 mil. all together). They didn't even want my money, they just wanted to make the loan to me (me of all people). I didn't win the bid on the property so didn't need the loan but, hmmmm.....?

I am still thinking about it.

[Taro Toporific]

how much deposit in cash did you have?

I can't speak for FG Lurker, but here in Ota-ku Tokyo it was NEAR-ZERO money down, but 2-3 million yen in closing costs, taxes, etc.
Catch? You need a perm visa or J-spouse. Real F'ed gaijin need 3-5 million down for a 400-500 million loan. Rates are still below 2%.

[Mulboyne]

Bloomberg: Land Prices in Japan's Largest Cities Show 1st Gain Since 1990

Commercial land prices rose in all of Japan's three largest cities for the first time in 15 years, adding to evidence the property market is rebounding in the world's second-largest economy...Nationwide, prices for commercial and residential land fell 2.7 percent in 2005, compared with 5.6 percent and 4.6 percent a year earlier... Tokyo's Marunouchi Building...is the most expensive commercial space in Japan at 24.4 million yen per square meter, up 11 percent from 2004... Land plots in front of Nagoya station, in Aichi prefecture, had the fastest gains at 38 percent... The top four residential land price increases in 2005 were in the Aoyama area of central Tokyo, which posted gains ranging from 26 percent to 29 percent.

If anyone is wondering why the BoJ's change in monetary stance might be influential, it's worth noting what Peter Tasker wrote recently - it covers the same themes mentioned in the articles above but with a bit more historical context:

It's been a long time coming―about 15 years, in fact. The Japanese central bank has just embarked on its first real monetary tightening since Japan's bubble economy imploded in the early '90s. Since then there has been only one direction for Japanese interest rates to go―south. Now, the Bank of Japan's decision last week to stop "quantitative easing"―pumping money into banks―heralds the end of free money in Japan. For most of this period Japan has been stuck in a kind of alternate financial universe...Real-estate prices slumped for 14 years in a row, for a total decline of 60 percent. And interest rates kept heading lower; by 2003, 30-year government bonds were yielding less than 1 percent. In bond-market terms, this is craziness on the scale of the dot-com boom. Bank deposits offered the princely return of 0.07 percent, so the yen equivalent of a million-dollar deposit produced post-tax income of about $600 a year. In Japan's high-cost economy, that's barely enough to finance a daily cup of coffee.

If a bizarre phenomenon goes on long enough, it starts to look normal. And the fact that the world's second largest economy abolished interest rates is a truly bizarre phenomenon. Not even in America's Great Depression did bond yields fall as low as in postbubble Japan. On the evidence of Sidney Homer's classic, "The History of Interest Rates," the Japanese government was borrowing money at the lowest cost since financial transactions were first recorded in ancient Babylon.

...Several months will pass before it drains off the liquidity injected into the money markets under the quantitative-easing regime, and policy rates will not be hiked until the second half of the year, at the earliest. By then, the BOJ will probably have accepted some sort of fuzzy-edged inflation target―most likely a "reference zone" of 1 to 3 percent on the consumer price index. For Japan what is happening is not a conventional monetary tightening, but a step toward financial normality. Just as falling interest rates have been associated with collapsing asset prices and stagnation, so rising rates should be accompanied by the reverse. And indeed the Japanese economy is in a much better place these days. Bank lending has turned positive for the first time in a decade. The labor market is unusually tight. Protracted cost cutting and a weak yen have left Japan ferociously competitive in key sectors such as autos, machinery and electronic components. But there are still risks. Much of the improvement in deflation is driven by external factors, such as surging commodity prices. With Japan's core inflation rate barely positive, a stumble in global growth could see the deflationary undertow regain strength.

Rising Japanese interest rates themselves could also have unfortunate consequences for the rest of the world. Just as Chinese wages are the floor price for the global labor market, Japanese bond yields represent the floor price for the global capital market. When Japan hit the wall in the early '90s, many commentators saw a severe global recession coming. Japan's appetite for imports did stagnate, but for most products Japanese demand was only a small slice of the global market. More to the point, the Japanese economy was moving so slowly that Japanese investors began pouring money overseas―primarily into U.S. bonds, but also into emerging markets, high-yield currencies such as the New Zealand dollar and financial exotica such as CDOs (collateralized debt obligations), funds of funds and private equity.

Now all those asset classes could lose a major customer, as Japan starts to invest more of its money at home. The buyer of last resort, who was ready and willing to pay top whack for every overvalued asset available, won't be around for ever. Of course a stronger Japanese economy is all part of the long-desired correction of global imbalances. But be careful what you wish for. You can't reduce the imbalances without reducing the tsunami of liquidity they have generated. In the months and years ahead, global markets could be in for a rocky ride.

[FG Lurker]

I can't speak for FG Lurker, but here in Ota-ku Tokyo it was NEAR-ZERO money down, but 2-3 million yen in closing costs, taxes, etc.
Catch? You need a perm visa or J-spouse. Real F'ed gaijin need 3-5 million down for a 400-500 million loan. Rates are still below 2%.

I could actually have borrowed enough to cover all my closing costs as well... After all the stories you hear about an F'd gaijin trying to borrow money here it was a very surreal experience.

[Taro Toporific]

... After all the stories you hear about an F'd gaijin trying to borrow money here it was a very surreal experience.

Just four years ago, Daikyo (Japan's largest condo developer), pissed on me by "bumping" my mortage rate to double the Japanese customer rate only 20 days from my closing. I told them to stuff it where the sun don't shine---They sent in muscle to me to ask me to "reconsider." It got ugly for a while, but Daikyo and their thugs whimped out and I got my earnest money back.
Now, just four years later several banks are offering gaijin mortages...not thugs. Weird.

[Vegas guy]

OMG have you got a bridge for sale too? I want one!!!!

you don't need a bridge. a thimble will do.