Tuesday, Feb. 27, 2007 | Rich Toscano’s take on the misleadingly enthusiastic The San Diego Union-Tribune editorial on the housing market brings to mind an analogous situation that occurred 20 years ago in the California commercial real estate market.

Tokyo real estate speculators drove up the price of commercial real estate in Tokyo to the point where owners, flush with billions of yen of paper profits, invested heavily in the California commercial real estate market. U.S. properties were, after all, a “bargain” given the perpetually weaker dollar. Golf courses and downtown high rises were among their favorites.

Then an interesting thing happened. The Japanese Ministry of Finance issued a caution against such continued speculation for it was causing “confusion in the market place” (Japanese code words for the government is going to act to stop it).

Commercial property values in Tokyo began to plummet and over-leveraged owners had to sell their California properties to avoid losing their Tokyo ones.

A mini-version of this is occurring in California. Instead of the Ministry of Finance, it is lenders who are acting to dampen the “confusion” in the California home market. Most commercial developers in Tokyo were able to hold on to their real estate there. Most over-leveraged home owners here are finding that they are having difficulty keeping their homes.

The bottom line: Hyper-inflated prices for any kind of real estate will come down where ever they are located based on government action, market forces, or a combination of both. To pretend otherwise is silly.

The difference between Japan and California? There, the Ministry of Finance and banks have a very close relationship which operates to protect the real estate owner. Here in California, the real estate owners fend for themselves.

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