Konnichiwa

On Feb 02 of 1990 The Japanese Nikkei stock market hit an all time high of 35,049. Why would anyone in the mortgage world care? 

Japan in the 1980’s was on fire. Stocks were on fire, real estate was on fire, and Japan was taking over the world. A lot of the top 10 businesses in the world were Japanese. That all changed in early 1990. 

What was once termed ” the lost decade” has lasted a little over 30 years. Leading into the 1990 correction, Japan had many of the same conditions that Canada and the US have had for the last 10 years or so. Cheap money, surging wealth in the average household, double digit property value growth, and a stock market that was white hot. However, all good things must come to an end, and they ended with a massive blow up. I won’t bore you with the details, but everything in Japan basically flatlined, and ushered in the deflation era.

It took until January 11 of 2024 for the Nikkei index to reach it’s previous all time high. Almost 34 years for an asset class ( in this case stocks ) to regain the record high. 34 years. For most of us that is 75% of our time on earth, and longer than most careers. 

For all of those 34 years there was someone who was saying ” the worst is behind us”, ” when interest rates get cut, the market will go back up”, ” get in now before it goes up and prices you out”. Based on these descriptions it would be hard to tell if I am talking about Japanese stocks, or Canadian housing. Things in Japan were well above the average person’s ability to afford it. The same could be said for Canadian housing.

Just because something dropped, does not automatically mean it will rebound quickly. Just because a house in Brampton traded for 2 Million in 2021, doesn’t mean the return to that price is imminent. Yes, eventually the average house in Brampton will be worth 2 million, but that day ain’t today, or tomorrow, and July doesn’t look much better.

Millions of Japanese investors were mired in the slow growth and deflationary environment for a little over 3 decades. Many fortunes have been lost banking on a quick return to record prices. Many bankruptcies were orchestrated because people levered into what many thought was a stabilizing market – only to find out they were catching a falling knife.

I am not here to say real estate can’t go up. It will…..eventually. Just like eventually the Japanese Nikkei stock index went up. However, there is a major difference in saying something goes up, and predicting the timeline. I am not saying it will take 34 years for Canadian housing to rebound to the batshit crazy days if late 2021 / early 2022…….but I am not saying it can’t happen either.

Always be careful when speaking to clients. What you say, and what they hear or interpret can be 2 totally different things. If this sparks an interest, do some research on the parallels between the late 80’s in Japan, and the Canadian housing market from 2018 to 2022. You may be surprised as to what you learn.

When you combine ignorance and leverage you get some pretty interesting results – Warren Buffett.