7 ms·

Incidentally, this is what has happened in Japan, but with one big difference. In Japan, people expect houses to be worthless after a decade, and they rebuild

Incidentally, this is what has happened in Japan, but with one big difference. In Japan, people expect houses to be worthless after a decade, and they rebuild their houses frequently. This is partly because the poor quality of houses built in the first decades after WWII has created a bias against older homes that is probably no longer justified. Many buyers tear down homes and replace them -- this happens everywhere, but it is more common in Japan. People who have owned their home for a few decades will have it torn down and rebuilt every 20-30 years, and they will continue to live in the new one without any intention of selling the land. On the other hand, while homes are worthless after a decade, land is extremely expensive. This leads to 40-year mortgages or to people building homes on land they lease for decades, and having them torn down when the lease ends. I don't expect that kind of situation to develop in the US, nor do I want it to, but it's always good to learn about other approaches to home ownership, because it demonstrates that considering a home as an investment is not natural or inevitable.

toomuchtodo 10y ago
But the problem is, if you've just spent 40 years paying a mortgage (which I assure you is probably a non-insignificant amount of your lifetime income in aggregate), you would expect to be able to recoup at least some of that expense, no? In the US, your primary residence is usually your largest asset, and by its very nature, it becomes an investment that you want to protect. The depreciating nature of real estate in Japan is okay because they're a nation of savers. They have other investments to draw upon in retirement. This is not true in the US, and your home is essentially a forced retirement vehicle (unless you're just stripping out the equity all of the time, in which case you're screwed). TL;DR It'd be fine if we pushed down real estate asset prices if people saved more and needed less income in retirement.
- monkmartinez 10y ago
  > In the US, your primary residence is usually your largest asset, and by its very nature, it becomes an investment that you want to protect Why should it be an asset in the first place?
  - toomuchtodo 10y ago
    Because that's how the system was built. Sure, tear said system down. But there will be consequences. You'll see consumption and tax revenues drop through the floor. You've got millions of homeowners 50+ who are expecting to use that asset value to live on, and that will need to come from somewhere else then (most likely social security and medicare topped up from federal tax receipts). We're just arguing over how we squeeze the ballon; the size of the ballon stays the same (for the most part). http://www.fanniemae.com/portal/research-insights/perspectives/110116-butrica-simmons.html http://www.fanniemae.com/portal/research-insights/perspectiv... "The Baby Boom generation possesses enormous home equity, which by some estimates exceeds $6 trillion. Despite this mountain of housing wealth, many Boomers will face financial insecurity in retirement. According to one study, between 30 and 40 percent of Boomers will have insufficient income at age 70 to adequately replace their pre-retirement earnings. The extent to which Boomers and preceding generations might be able to draw upon their housing wealth to enhance financial security in retirement hinges on multiple factors, including: * the amount of home equity that older adults of different socioeconomic subgroups hold today and will likely hold in the future * seniors’ willingness to tap housing assets in retirement * the barriers that older adults might face in extracting home equity to finance retirement spending." "For most households, a majority of their wealth derives from owning a primary residence, and the authors find that the proportion of households aged 65 and over who own their homes has held up quite well despite the housing bust and subsequent homeownership decline. Whereas the overall homeownership rate has fallen to multi-decade lows in the wake of the housing crisis, the proportion of older adults who owned their primary residence was 78.2 percent in 2012, slightly higher than it was in 1998 or at the peak of the housing bubble in 2006."
    - deleted 10y ago
      [deleted]
    - monkmartinez 10y ago
      > ... You've got millions of homeowners 50+ who are expecting to use that asset value to live on... Wealth and cash flow are two very different things. I can't tell you what the future holds for sure, but a few things. If they have significant equity in their home, chances are good that they have significant equity in other places as well. I don't have data to back this up, with the exception of my role on the board of a my employer's 457b plan. Timing, more than anything, has more to say on any matter in retirement that we give credit. One doesn't know when cancer hits. One doesn't know when COPD hits, and you have to move to Arizona. One doesn't get to pick when the market bottoms or tops. Housing is a lousy investment from a purely numbers point of view. I became an owner very reluctantly and it has cost me dearly. Taxes have gone up 15% every year. While they house ages it breaks and I am on the hook for everything. $75 in weed/bug stuff today... next week it will be something else, and the week after. I've spent multi-thousands on this thing outside of mortgage that I will never recoup... also time and it pisses me off. My sweat equity will never be recaptured, really. I am only 36 once, and I spent a good three months last year remodeling a bathroom (due to mold) and missed a ton of good run days, time with family. BUT I saved a bunch of money doing it myself!!!! Don't care, laying tile sucks ass. never again. I can't wait until home ownership becomes a relic of the past.
- twblalock 10y ago
  Japanese people do not expect to recoup the value of the land they paid their mortgage for. They expect their children to inherit the land and live on it. Considering that mortgages last 40 years, a lot of them are paid off by two generations of the family. Land in Japan is not really an investment. Investments are made with the purpose of selling them at some point in the future to realize gains. That's not how Japanese people approach land ownership. It's not how Americans really approach it either -- many Americans will say that their home is an investment but also say they want to live in it until they die, which means they will never realize any gains.
  - mcguire 10y ago
    I thought I read, a very long time ago, that 100-year mortgages were common in the Tokyo area.
    - manarth 10y ago
      There's a Fortune article which refers to Japan's 99-year and 100-year mortgages [1], in 1990. However, here's a Telegraph article which is only a year old, reporting Sweden's average mortgage term is 140 years [2]. [1] http://archive.fortune.com/magazines/fortune/fortune_archive/1990/05/21/73567/index.htm http://archive.fortune.com/magazines/fortune/fortune_archive... [2] http://www.telegraph.co.uk/personal-banking/mortgages/sweden-cuts-maximum-mortgage-term-to-105-years-the-average-is-14/ http://www.telegraph.co.uk/personal-banking/mortgages/sweden...
      - ptaipale 10y ago
        In Sweden the average for new loans indeed was 140 years, but since then, the regulator has set a maximum of 105. That's still a long time of course. http://www.telegraph.co.uk/personal-banking/mortgages/sweden-cuts-maximum-mortgage-term-to-105-years-the-average-is-14/ http://www.telegraph.co.uk/personal-banking/mortgages/sweden...
  - jdavis703 10y ago
    Well technically it is an investment, because once you've paid off the mortgage, the rents (i e. mortgage payments) become imputed income.
- AnthonyMouse 10y ago
  > But the problem is, if you've just spent 40 years paying a mortgage (which I assure you is probably a non-insignificant amount of your lifetime income in aggregate), you would expect to be able to recoup at least some of that expense, no? It's not just that. Imagine that you've just taken out a 40 year $500,000 mortgage. How happy are you going to be if next year your house is now worth $250,000 but you still owe $490,000 on it? As far as I can tell the best solution to this is to expand the housing stock in the presence of moderate inflation, so that nominal housing prices stay the same while real housing prices fall. The US has a huge debt problem in general and moderate inflation helps with that too -- if the government creates new money it's that much less they have to borrow or tax and it reduces the real value of the national debt and everyone's mortgage, student loans, etc.
  - hudibras 10y ago
    >Imagine that you've just taken out a 40 year $500,000 mortgage. How happy are you going to be if next year your house is now worth $250,000 but you still owe $490,000 on it? The thing is, this is exactly what happens with everything else that an American consumer purchases with a loan: cars, boats, RVs, everything that is purchased with a credit card. As has been said before, a house is just a wooden box that you leave out in the rain for 30 years. But yet we expect that this box will become more valuable over time...
    - zero_intp 10y ago
      I think a reasonable assumption should be made regarding home ownership, "Assume to pay (yearly) 3% of the current purchase price in maintenance or deferred work."
    - PretzelFisch 10y ago
      I think your confusing house cost and property cost. There are not a lot of 500k homes around.
    - accountface 10y ago
      i always assumed house prices went up because the population center expands and the price balloons out from the center, I guess i'm kind of dumb though
- adventured 10y ago
  > The depreciating nature of real estate in Japan is okay because they're a nation of savers They were a nation of savers (15+ years ago). Dec 2014: "Japan’s savings rate turns negative for first time" http://www.bbc.com/news/business-30603313 http://www.bbc.com/news/business-30603313 Chart: http://i.imgur.com/X3uwYCp.png http://i.imgur.com/X3uwYCp.png The Japanese Government had to shift to Yen debasement to deal with their debt because there was no longer enough of a savings base to sell their immense debt requirements into. The Japanese famously own most of their debt, previously funded by that high savings rate. The consequence of that debt and Yen destruction, is the Japanese standard of living is being hammered. Their savings rate has fallen from ~15% in 1990, to basically 0%-2% now. This is happening simultaneously while their consumer economy struggles along as it has for decades. What happened? They've debased the Yen so much, and Japan has fallen so far behind on economic growth (they climbed above the US on GDP per capita by 1988, were 50% higher by 1995, and will soon be 50% below the US), that the high cost of living in eg Tokyo now consumes too much of their incomes to be able to save like they used to. Today, Japan's GDP per capita is comparable to where it was in the early 1990s. In that time, China has increased its GDP 20 fold, South Korea and the US have roughly tripled their GDP. South Korea should catch Japan on per capita GDP in the next decade at the rate things are going (30 years ago there was 6x gap between them). Japan's GDP per capita is about 20%-25% lower than it was in 1995. Some people blame the lack of population growth on Japan's inability to grow its economy. Germany has tripled its economy with zero population growth. Austria has tripled its economy with 10% population growth. Sweden has had sub 20% population growth over 30 years, and tripled their economy (South Korea has performed similarly on both metrics). There are far too many examples of low population growth countries substantially boosting their economies, for that to be the primary issue (especially given Japan's population growth was a mere 10% between 1980 and 1995, despite a huge leap in economic output). Hysterical deflationary economists have proclaimed for two decades that Japan was suffering vicious deflation. The fact is, they haven't actually suffered much deflation, their CPI has been more flat than down meaningfully the last 30 years. Chopping the Yen to pieces to deal with debt, is rapidly inflating away their economic position in the world, while the lack of falling prices is crushing their standard of living (prices have stayed expensive, while real disposable income has fallen, eradicating savings).

toomuchtodo 10y ago

But the problem is, if you've just spent 40 years paying a mortgage (which I assure you is probably a non-insignificant amount of your lifetime income in aggregate), you would expect to be able to recoup at least some of that expense, no? In the US, your primary residence is usually your largest asset, and by its very nature, it becomes an investment that you want to protect. The depreciating nature of real estate in Japan is okay because they're a nation of savers. They have other investments to draw upon in retirement. This is not true in the US, and your home is essentially a forced retirement vehicle (unless you're just stripping out the equity all of the time, in which case you're screwed). TL;DR It'd be fine if we pushed down real estate asset prices if people saved more and needed less income in retirement.

monkmartinez 10y ago
> In the US, your primary residence is usually your largest asset, and by its very nature, it becomes an investment that you want to protect Why should it be an asset in the first place?
- toomuchtodo 10y ago
  Because that's how the system was built. Sure, tear said system down. But there will be consequences. You'll see consumption and tax revenues drop through the floor. You've got millions of homeowners 50+ who are expecting to use that asset value to live on, and that will need to come from somewhere else then (most likely social security and medicare topped up from federal tax receipts). We're just arguing over how we squeeze the ballon; the size of the ballon stays the same (for the most part). http://www.fanniemae.com/portal/research-insights/perspectives/110116-butrica-simmons.html http://www.fanniemae.com/portal/research-insights/perspectiv... "The Baby Boom generation possesses enormous home equity, which by some estimates exceeds $6 trillion. Despite this mountain of housing wealth, many Boomers will face financial insecurity in retirement. According to one study, between 30 and 40 percent of Boomers will have insufficient income at age 70 to adequately replace their pre-retirement earnings. The extent to which Boomers and preceding generations might be able to draw upon their housing wealth to enhance financial security in retirement hinges on multiple factors, including: * the amount of home equity that older adults of different socioeconomic subgroups hold today and will likely hold in the future * seniors’ willingness to tap housing assets in retirement * the barriers that older adults might face in extracting home equity to finance retirement spending." "For most households, a majority of their wealth derives from owning a primary residence, and the authors find that the proportion of households aged 65 and over who own their homes has held up quite well despite the housing bust and subsequent homeownership decline. Whereas the overall homeownership rate has fallen to multi-decade lows in the wake of the housing crisis, the proportion of older adults who owned their primary residence was 78.2 percent in 2012, slightly higher than it was in 1998 or at the peak of the housing bubble in 2006."
  - deleted 10y ago
    [deleted]
  - monkmartinez 10y ago
    > ... You've got millions of homeowners 50+ who are expecting to use that asset value to live on... Wealth and cash flow are two very different things. I can't tell you what the future holds for sure, but a few things. If they have significant equity in their home, chances are good that they have significant equity in other places as well. I don't have data to back this up, with the exception of my role on the board of a my employer's 457b plan. Timing, more than anything, has more to say on any matter in retirement that we give credit. One doesn't know when cancer hits. One doesn't know when COPD hits, and you have to move to Arizona. One doesn't get to pick when the market bottoms or tops. Housing is a lousy investment from a purely numbers point of view. I became an owner very reluctantly and it has cost me dearly. Taxes have gone up 15% every year. While they house ages it breaks and I am on the hook for everything. $75 in weed/bug stuff today... next week it will be something else, and the week after. I've spent multi-thousands on this thing outside of mortgage that I will never recoup... also time and it pisses me off. My sweat equity will never be recaptured, really. I am only 36 once, and I spent a good three months last year remodeling a bathroom (due to mold) and missed a ton of good run days, time with family. BUT I saved a bunch of money doing it myself!!!! Don't care, laying tile sucks ass. never again. I can't wait until home ownership becomes a relic of the past.
twblalock 10y ago
Japanese people do not expect to recoup the value of the land they paid their mortgage for. They expect their children to inherit the land and live on it. Considering that mortgages last 40 years, a lot of them are paid off by two generations of the family. Land in Japan is not really an investment. Investments are made with the purpose of selling them at some point in the future to realize gains. That's not how Japanese people approach land ownership. It's not how Americans really approach it either -- many Americans will say that their home is an investment but also say they want to live in it until they die, which means they will never realize any gains.
- mcguire 10y ago
  I thought I read, a very long time ago, that 100-year mortgages were common in the Tokyo area.
  - manarth 10y ago
    There's a Fortune article which refers to Japan's 99-year and 100-year mortgages [1], in 1990. However, here's a Telegraph article which is only a year old, reporting Sweden's average mortgage term is 140 years [2]. [1] http://archive.fortune.com/magazines/fortune/fortune_archive/1990/05/21/73567/index.htm http://archive.fortune.com/magazines/fortune/fortune_archive... [2] http://www.telegraph.co.uk/personal-banking/mortgages/sweden-cuts-maximum-mortgage-term-to-105-years-the-average-is-14/ http://www.telegraph.co.uk/personal-banking/mortgages/sweden...
    - ptaipale 10y ago
      In Sweden the average for new loans indeed was 140 years, but since then, the regulator has set a maximum of 105. That's still a long time of course. http://www.telegraph.co.uk/personal-banking/mortgages/sweden-cuts-maximum-mortgage-term-to-105-years-the-average-is-14/ http://www.telegraph.co.uk/personal-banking/mortgages/sweden...
- jdavis703 10y ago
  Well technically it is an investment, because once you've paid off the mortgage, the rents (i e. mortgage payments) become imputed income.
AnthonyMouse 10y ago
> But the problem is, if you've just spent 40 years paying a mortgage (which I assure you is probably a non-insignificant amount of your lifetime income in aggregate), you would expect to be able to recoup at least some of that expense, no? It's not just that. Imagine that you've just taken out a 40 year $500,000 mortgage. How happy are you going to be if next year your house is now worth $250,000 but you still owe $490,000 on it? As far as I can tell the best solution to this is to expand the housing stock in the presence of moderate inflation, so that nominal housing prices stay the same while real housing prices fall. The US has a huge debt problem in general and moderate inflation helps with that too -- if the government creates new money it's that much less they have to borrow or tax and it reduces the real value of the national debt and everyone's mortgage, student loans, etc.
- hudibras 10y ago
  >Imagine that you've just taken out a 40 year $500,000 mortgage. How happy are you going to be if next year your house is now worth $250,000 but you still owe $490,000 on it? The thing is, this is exactly what happens with everything else that an American consumer purchases with a loan: cars, boats, RVs, everything that is purchased with a credit card. As has been said before, a house is just a wooden box that you leave out in the rain for 30 years. But yet we expect that this box will become more valuable over time...
  - zero_intp 10y ago
    I think a reasonable assumption should be made regarding home ownership, "Assume to pay (yearly) 3% of the current purchase price in maintenance or deferred work."
  - PretzelFisch 10y ago
    I think your confusing house cost and property cost. There are not a lot of 500k homes around.
  - accountface 10y ago
    i always assumed house prices went up because the population center expands and the price balloons out from the center, I guess i'm kind of dumb though
adventured 10y ago
> The depreciating nature of real estate in Japan is okay because they're a nation of savers They were a nation of savers (15+ years ago). Dec 2014: "Japan’s savings rate turns negative for first time" http://www.bbc.com/news/business-30603313 http://www.bbc.com/news/business-30603313 Chart: http://i.imgur.com/X3uwYCp.png http://i.imgur.com/X3uwYCp.png The Japanese Government had to shift to Yen debasement to deal with their debt because there was no longer enough of a savings base to sell their immense debt requirements into. The Japanese famously own most of their debt, previously funded by that high savings rate. The consequence of that debt and Yen destruction, is the Japanese standard of living is being hammered. Their savings rate has fallen from ~15% in 1990, to basically 0%-2% now. This is happening simultaneously while their consumer economy struggles along as it has for decades. What happened? They've debased the Yen so much, and Japan has fallen so far behind on economic growth (they climbed above the US on GDP per capita by 1988, were 50% higher by 1995, and will soon be 50% below the US), that the high cost of living in eg Tokyo now consumes too much of their incomes to be able to save like they used to. Today, Japan's GDP per capita is comparable to where it was in the early 1990s. In that time, China has increased its GDP 20 fold, South Korea and the US have roughly tripled their GDP. South Korea should catch Japan on per capita GDP in the next decade at the rate things are going (30 years ago there was 6x gap between them). Japan's GDP per capita is about 20%-25% lower than it was in 1995. Some people blame the lack of population growth on Japan's inability to grow its economy. Germany has tripled its economy with zero population growth. Austria has tripled its economy with 10% population growth. Sweden has had sub 20% population growth over 30 years, and tripled their economy (South Korea has performed similarly on both metrics). There are far too many examples of low population growth countries substantially boosting their economies, for that to be the primary issue (especially given Japan's population growth was a mere 10% between 1980 and 1995, despite a huge leap in economic output). Hysterical deflationary economists have proclaimed for two decades that Japan was suffering vicious deflation. The fact is, they haven't actually suffered much deflation, their CPI has been more flat than down meaningfully the last 30 years. Chopping the Yen to pieces to deal with debt, is rapidly inflating away their economic position in the world, while the lack of falling prices is crushing their standard of living (prices have stayed expensive, while real disposable income has fallen, eradicating savings).