Harry S. Dent | Tuesday, January 8, 2013 >>
If you have any doubt that real estate flipping is dead, look at this chart…
What you’re looking at above is the massacre in the Japanese real estate market from 1991 to present day (red). It collapsed by more than 60% during that time. Prices continue to fall.
That means Japan has endured a 21-year bear market in real estate… with no signs of a revival.
And because Japan is a beacon for the rest of the developing world, like the U.S. and Europe, you can safely expect a similar plot in real estate right here at home.
The question is: will the situation here in the U.S. deteriorate as far as it did in Japan and will the bear market last as long?
To answer that, let’s take a step back and look at what happened in Japan demographically speaking…
The country’s Baby Boom was a bit steeper than the U.S. and peaked between 1941 and 1949, 11 to 20 years before American Baby Boomers, who peaked in 1961. Following the predictable Spending Wave, Baby Boomers in the land of the rising sun pushed real estate prices and homebuilding into a peak in 1991 (Japanese home buying peaks around age 42). As the largest segment of the population began to slow their spending, Japanese real estate fell off a cliff.
Unfortunately for Japan, its Echo Boomer generation is smaller than its massive predecessor (the first time in history where the next generation isn’t larger than the one that came before it, in fact). They entered their home-buying cycle around 2000, but because they’re fewer in number, they did little to pull the Japanese property market out of its nose dive.
As it turnrns out, 1991 marks the year Japan’s real estate market peaked – forever.
Even though new households are forming from Japan’s smaller Echo Boom generation, there are increasingly larger numbers of older households that are either dying or moving into nursing homes. This puts more homes onto the market than are being snapped up. It also creates a longer term situation where the Japanese don’t need to build any more new homes (except in growing local areas where people are migrating to).
Japan’s ratio of buyers to die-ers will continue to deteriorate for decades ahead, especially after 2015.
The bad news for the U.S. is that our Echo Boomer generation is also smaller than our Baby Boomer generation generation although it stretches out much longer than Japan’s. Our ratio of buyers to die-ers falls more seriously after 2013. And you thought we finally had a sustainable real estate recovery!
The good news is the size difference between the two here at home is far less extreme than in Japan. Plus we have much more favorable immigration policies that help reduce that discrepancy. As a result, our property market will fare better than Japan’s will in the decades ahead.
Still, based on the current demographic trends here at home, it’s a safe bet that our property market reached its “forever-peak” in 2006, when it rolled off the “Demographic Cliff.”
We learnrned the painful lesson that, unlike what we’d all come to believe, property prices don’t go up forever. Now, with the smaller Echo Boomer generation entering their home-buying cycle, home prices may recover only modestly at times like now. Mostly, they’ll languish for the rest of the decade.
We will never again see the level of home prices and homebuilding we enjoyed before 2006, even in the next boom ahead (which will start around a decade from now).
That’s why you must banish the idea of flipping houses to boost your retirement funds. Also forget the idea that your home’s value will appreciate like it did in the past. Both strategies are dead.
Instead, buy homes, apartments or commercial real estate to rent out for a positive cash flow. Consider any appreciation on properties you own a bonus.
And keep reading Survive & Prosper. We’ll help you look for real estate opportunities in select markets in the U.S. and around the world (especially in the emerging countries where rising demographic trends favor property markets).
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