Japanese Boogey-Man Still Haunts U.S Housing Market
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Despite gains in some cities, housing prices in the U.S. continue to decline according to the most recent S&P/Case-Shiller Home Price Index. In fact, housing prices are at their lowest levels since the housing crisis began in mid-2006. Considering mortgage rates are at record lows, this is a worrying sign for a housing recovery in the U.S., as it illustrates the difficulty the Federal government is having as they attempt to stabilize prices.
The parallels between the U.S. and Japan in the 1990s are easy to see, and many economists have already pointed out the parallels and distinction between the economies. For example, there are differences in the policy response in the U.S. and the policy response in Japan. There is also a difference between U.S. consumers, who are anything but spend-thrift, and the Japanese consumer who is happy to invest their saving in Japanese government bonds.
However, the root cause of deflation in both cases is housing. Therefore, it is safe to say that watching for parallels and similarities between housing prices in the U.S. and housing prices in Japan is a good place to start when trying to make a prediction about the U.S. recovery. Even if it is only an anecdotal approach, it should provide some clarity on the key questions that investors are asking - when will the decline in housing prices end?
If you overlay a chart of the U.S. housing prices with housing prices in Japan, lining up the 1990 peak with the 2006 peak in the US, it is clear to see that we may have a long way to go before prices return to previous levels. But, what is also clear is that the decline in housing is probably nearing the end its natural downward cycle.
If so, it doesn't necessarily mean that the deflation boogey-man is dead, but it is at least a good starting point for a recovery in the U.S. Couple this with recent data that saw housing prices in 12 of 20 major cities in the U.S. rise last month, it is probably fair to say we are living in the trough between the housing market crash and the next bullish market. But bear in mind, if the time lines between the U.S. and Japan line up, the next wave north could take years to arrive, which is both a terrifying and hopefully proposition. In any case, it is better than were we were a year ago.
The parallels between the U.S. and Japan in the 1990s are easy to see, and many economists have already pointed out the parallels and distinction between the economies. For example, there are differences in the policy response in the U.S. and the policy response in Japan. There is also a difference between U.S. consumers, who are anything but spend-thrift, and the Japanese consumer who is happy to invest their saving in Japanese government bonds.
However, the root cause of deflation in both cases is housing. Therefore, it is safe to say that watching for parallels and similarities between housing prices in the U.S. and housing prices in Japan is a good place to start when trying to make a prediction about the U.S. recovery. Even if it is only an anecdotal approach, it should provide some clarity on the key questions that investors are asking - when will the decline in housing prices end?
If you overlay a chart of the U.S. housing prices with housing prices in Japan, lining up the 1990 peak with the 2006 peak in the US, it is clear to see that we may have a long way to go before prices return to previous levels. But, what is also clear is that the decline in housing is probably nearing the end its natural downward cycle.
If so, it doesn't necessarily mean that the deflation boogey-man is dead, but it is at least a good starting point for a recovery in the U.S. Couple this with recent data that saw housing prices in 12 of 20 major cities in the U.S. rise last month, it is probably fair to say we are living in the trough between the housing market crash and the next bullish market. But bear in mind, if the time lines between the U.S. and Japan line up, the next wave north could take years to arrive, which is both a terrifying and hopefully proposition. In any case, it is better than were we were a year ago.
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