By John Grace
It is clear to this observer that too many of us don’t learn much from history because we are too busy repeating it.
One of the mistakes many of us make is to believe things are different here in the land of American exceptionalism. Another error is simply believing what has happened in the past is the best barometer for what’s going to occur in the future.
The truth is, no matter where we are in the world, we are all breathing the same air, drinking the same water and flying the same planes.
In the late 1990s Americans went nuts preparing for “Y2K,” yet we were just fine with the fact that Japan looked like it would soon be master of the universe, replacing the U.S. in the No. 1 spot of gross domestic product.
Thanks to becoming a charter member and passing a test in 1999 to become master-certified at Dent Research, we have been studying demographic trends around the world over the past 24 years. There are several characteristics that make the Japanese people unique.
They tend to be as punctual as one can be, often work harder than anyone you know, are very diligent about their work, are among the politest folks you will find, practice the art of cleanliness like no other, and when ranked by intelligence, Japan is No. 1 in average IQ by country for 2023, according to Wisevoter.
Right before your very eyes, the Japan superpower fell from grace in about four decades. Japan’s so-called “lost decade” started coming apart at the seams with the Nikkei 225 falling about 80% from peak to trough in the 1990s.
After a sharp rise in asset prices from the late 1980s to the early 1990s, the collapse of the Japanese bubble economy resulted in sharp declines in the cost of land, capital and homes.
The reason this is worth studying is that Japan has gone through the boomer bubble and burst cycle before us. Hint: we are following them.
While there are a host of reasons for this occurrence, it may be that the primary factor is, with a median age of 40.4 years, and a population of 127 million people, Japan’s population is the world’s oldest.
Thanks to the International Monetary Fund, we can also see that Japan’s population is aging and shrinking fast. In contrast, with a population of 332 million people, the average age in the U.S. is 38.5 years, per World Data. It is also noteworthy that while the average age of death has risen in Japan to 84.8, the average age of death for Americans has come down to 77.4, according to the same source.
It is challenging to absolutely know how things might come to pass. But what we can see is that the Nikkei 225 reached a record high of 38,915 on Dec. 29, 1989, and a record low of 7,568 in February 2009. The Nikkei 225 closed at 28,950 on May 8, 2023, which means the index remains over 26% lower than it was 34 years ago.
To put that in dollars for you, what was a Japanese stock index value of $1 million at the end of 1989 turned into about $200,000 in 1992, and is approximately $700,000 today. That is assuming you didn’t need to sell one share for income over the past three decades.
Of course, we all know that the road to riches is paved with residential real estate. When we are in a world where they just aren’t making more real estate, one could reasonably assume prices must continue toward the moon forever. Please put away those small, rose-colored glasses that discolor everything and are focused only on the past.
Japanese home prices peaked in 1991 about a year after their stock prices began to topple. Prices dropped 70% into 2013. And Japanese real estate prices have not bounced back in spite of the young generation, albeit smaller than the Boomers in Japan, who came along to buy again.
It may be that Japanese real estate didn’t bounce, thanks to its millennial generation, because people dying were outpacing people buying.
As Japan’s population shrinks and more properties go unclaimed, an emerging segment of buyers is seeking out rural architecture in need of some love.
The Nomura Research Institute puts the number of properties that have gone unclaimed at over 11 million and predicts such properties “could exceed 30% percent of all houses in Japan by 2033.”
Try and wrap your mind around living in Japan where approximately 18% of the 62 million dwellings are vacant today. And if the estimate above holds, look at your block to see three out of every 10 homes are empty and in complete disrepair. Cash is always king. Equity? Maybe not so much.
John Grace is a registered representative with LPL Financial. His On the Money column runs monthly in The Wave. The opinions expressed here are for general information only and are not intended to provide specific advice or recommendations for any individual.
The reason this is worth studying is that Japan has gone through the boomer bubble and burst cycle before us.