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There is a great deal of discussion going on in the real estate world that the real estate downturn in the United States is going to mimic the 10 year downturn that Japan went through in the 1990’s. The fear of rampant deflation or at best stagflation is often the fear raised by those who profess doom. Chicken Little works well with these folks.

However, after reading a speech by Edward Lincoln, director of the Center for Japan-US Business and Economic Studies and Professor of Economics at New York University Stern School of Business, most of the fears that cross my mind at 4 am in the morning have been put to rest.

His general thesis is that the flexibility of the United States economy is designed to weather financial storms much easier than the central command economy of Japan. Add to that much stricter and tighter financial controls, problems that linger in Japan get recognized and fixed much quicker in the United States.

This is an enlightening speech and I do hope you have time to read it. Lincoln does not sugar coat our problems, he points out some very glaring ones. But overall he shows how the US economy is resilient and can avoid severe downturns like many are projecting.

On the real estate side, part of the difference may be simply in both economic growth and in population growth. In terms of economic growth, we’re growing at 3.0-3.5% a year, on average, over long periods of time. Japan is now down to probably 1.0-2.0% a year. As you grow, you have more demand for office buildings and things like that. That demand growth is stronger in the United States, and should be stronger over the next decade in the United States, than in Japan.

And similarly with population. We still have a growing population. Japan does not. Japan now has a shrinking population. It is shrinking particularly rapidly at the younger end of the demographic chain, and that means that we are going to see fewer and fewer and fewer new households looking for a place to live. So the longer-term prospects are, I think, for a fairly quick recovery in real estate prices - or at least a turn back up, if not a total recovery - in the United States.  via Asia Times Online

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