C'mon, Wab, it's never that simple.
From Hawaii I would've said that the Japanese economy crashed because every bank in their country was lending to the keiretsu on the world's easiest margins, making good on their customer's dumbest investments, buying every derivative that Wall Street could cram down their throats, and hiding the whole thing under a web of interlocking partnerships & SPEs that made Enron look like a pack of Boy Scouts.
And we were also struggling through DESERTs SHIELD & STORM, which pretty well crushed the Japanese oil & travel industries, to say nothing of the American versions. And when the Japanese buying stopped (both retail & real estate), then Hawaii found out how leveraged our expectations really were.
But instead of coming clean, the Japanese financial industry continued to cover up-- drying up all liquidity and driving the economy straight into deflation. The govt also dried up liquidity in hopes of keeping a strong yen. Frankly they're lucky they didn't end up in America's 1930 Smoot-Hawley territory all over again.
Hey, this time it's really really no-kidding different. Sure, oil is tight for OPERATION IRAQI FREEDOM. And travel is tight from oil & terrorism.
But the financial industry has learned how to lay off default risk by selling the derivatives of that risk to insurance companies, institutions, pension funds, & retail investors. And every mortgage-holding bank or credit union has laid off their debt as collateralized mortgage operations, bought again by... you get it. Just look at Fannie & Freddie's latest contortions.
I think the nationwide real-estate runup has been pretty reasonable when today's record-low interest rates make mortgage payments about the same % of take-home pay as 1989. There still are (will always be) the pockets of excess that you've pointed to but the low rates and the Treasury's three shifts at the printing plant will keep things from crashing.
Hawaii's 21st century real estate boom began not with the Japanese but from Silicon Valley. A portion of those investors smart enough to flee tech sank their profits into Hawaiian land & trophy homes. Maybe as real estate falls off, people will liquidate their equity and buy QQQs?
FWIW things are slowing down here too. Statewide June/July price & volume records weren't broken last month or this month. (Maui & Kauai were another story like Orange County.) But schools are back in session and the seasonal slowdown may be upon us all. We'll know more in another six months!
I think that Florida real estate-- what's left of it-- will go through a crash & rebound as frustrated retirees flee for Arizona (no rain?) this December while optimistic value investors slowly flow in to buy them out next summer.
And I'd sure hate to be an insurance company holding its float in a large basket of illiquid derivatives right now. Warren Buffett's probably looking at the large-cat & re-insurance competition right now and licking his chops.
I bet that Florida Power & Light stock is approaching deep-value territory this weekend... so it should be pretty immune to potential future downward pressure?