Japan 1991: the most extreme real estate bubble in modern history
At the end of the 1980s, Japan was experiencing an unprecedented real estate euphoria. In 1989, Tokyo real estate was worth more than the entire US East Coast combined, a spectacular situation that illustrates the scale of the bubble. According to a study by the University of Tokyo (Shiller et al., 2010), the average price/income ratio in Tokyo had reached a level above 30, double the thresholds usually considered already excessive.
This bubble is mainly explained by three factors: the 1985 Plaza Accord, which greatly depreciated the yen and boosted Japanese exports, generating a massive trade surplus; ultra-easy credit, with historically low interest rates (around 2% at the end of the 1980s); and intense land speculation, fueled by the almost religious belief that real estate prices would never fall. Mortgage credit was often granted without real solvency analysis, with Japanese banks under pressure to lend massively.
The crash was brutal. Between 1989 and 2002, the Nikkei index fell by nearly 80%, and the real estate market followed the same trajectory. Thirty years later, in 2021, real estate prices in Tokyo remain about 50% below their 1989 peak (source: Bank of Japan, 2022). This prolonged stagnation has led to what is called the "lost decade," with almost zero economic growth and persistent deflation.
The Japanese lesson is clear: a real estate bubble fueled by excess credit and unrealistic expectations can lead to a lasting correction, or even a structural market collapse. The accumulated debt became a poison for the banking system, causing a major financial crisis and a collapse of investor confidence.