China's effect on U.S. Markets

13 Replies

What should we be worried about or watching for in regards to the U.S. real estate markets?  I haven't been keeping up with the details (and even if I did I wouldn't truely understand the correlation) but I'm in the middle of moving forward with a few new deals and want to understand any negative impacts.



What size investments are you making @Josh Goff in terms of dollars? Anything less than large institutional investments (multi-million dollar deals) and I wouldn't worry. Real estate is so local. You may see interest rates remain unchanged but thats not a bad thing. 

Great thanks @Rob Beland !  I'm only investing in single family houses so hopefully everything goes as planned!  Have a great day

I would be more worried about what effects the US will have on the US.  We are about to start paying badly for all this hyper-inflation since 2008.  Its going to be a slow painful trickle.  Fortunately for those holding, real estate may remain the most stable investment, as less and less people will be able to afford to purchase.  The interest rate has to go up at some point in time.  China's economy may actually help us get production back to pre 1970 levels and we can begin actually trading again.  Until the feds let this overaired tire go down, expect another burst.  But I still think rei will be king.  Landlords will truly be landlords again.  Just my opinion, based off Austrian Economics, the Keynesian will tell you the opposite, but you see what happened in 2008 when they thought things were still under control.  Over-inflation always gets paid for sometime.  

There are a few points to keep in mind.

One, no one really knows what causes the US stock market to move up and down. I have seen many speculative pieces over the past day on what is causing it, but it is just that - speculation. Maybe it is caused by China. The Chinese have been increasing consumers of US products each year, so if the Chinese are doing poorly, they are purchasing less American products and this affects our stock market. 

Second, no one knows what the stock market is going to do. From now, it might go up or it might go down. 

If the stock market continues to go down then it is going to negatively affect real estate purchase prices. So buyers may get better deals, maybe significantly better deals than what is available now, but again, no one knows if this will happen. What you are risking by waiting for better opportunities (if you are buying), is that the stock market decline doesn't happen and you have lost time, the possible upside is that there might be more and better deals available. If I was selling, I would go ahead and sell because if there is uncertainty in the stock market it will be favorable to buyers.

I would be more concerned about the new TRID regulations more than anything else.

On October 3, there are new closing documents that take the place of the HUD-1 and Truth in Lending disclosures.

If you have a closing scheduled for the first few weeks of October, keep an open mind and be permissive of extended closing dates. There are new closing timelines that cannot be ignored or altered, unless specific circumstances apply. Basically, if you don't get your closing documents on time, the closing has to be pushed back. Expect delays while the lenders and title companies figure this all out.

As for the Chinese market, it doesn't have a huge effect on the US housing market. The Chinese government devalued their currency. Their economy is taking a hit. Our markets were due for a correction, because they were over valued. After two days of down markets, the market is currently up. 

It doesn't have any effect unless the chinese have their money parked in multi million dollar condo's in miami or LA or NYC and you're competing for those. It won't affect the markets here at all.

@Josh Goff

From our perspective here in China, we see that the volatility of the China stock market is creating more interest in the US real estate market.

As such, we see more positive effects than negative.  As others have pointed out however, it is more important to consider how the US economy is performing.

We can ask Trump? Maybe next podcast @Brandon Turner ?

I know down here in South Florida, is  A LOT of Chinese money in huge luxury apartment development deals. Usually, South Florida has been South America. Influenced but a lot of Chinese developers are making some big deals down here.

I suppose the strong dollar will keep some foreign investment out. But if Chinese investors suspect the government will consider to devalue the yuan, they may try to purchase US assets. 

I think REI is a lot more local than people think. In tech hotspots with a lot of well-off H1B workers who have caught on, there might be significant investment in RE. For example, in Austin there were a lot of wealthy Asian-Americans whose families had clearly invested in local real estate. In LA, SFO, Seattle, I'm sure this is a phenomenon too. But that's a far cry from Chinese billionaires buying up swaths of suburbia in every major US city.

Like a previous poster said, the US is going to effect the US. 

I believe the only effect China will have on the US is by further devaluing their currency thus putting pressure on the Federal Reserve to keep rates unchanged and prop the equity markets up via Quantitative Easing 4 (QE4). 

As a capitalist, no matter what industry you are in, please keep an eye on when the Fed reinstates QE (printing money).  If that occurs, tangible assets are going to inflate and the US Dollar is going to tank.   

How will this effect RE?  I'm not entirely sure but I think we can all agree that residential RE prices are generally becoming too expensive for the average person's salary.  I live in Los Angeles county and I have no idea how anyone making less than $120K a year can even afford a single family home.  So when QE starts some assets which have experienced malinvestment should correct while others will rise.   Personally I think RE will correct by a flood of sales from the Wall St. investors who have been holding since 2012.  

BTW, this is my first post.  Popped my BP cherry.  :)

China had been manipulating the currency by pegging the yuen to the dollar. This kept the yuen artificially weak so that it could continue to export cheaply to the U.S. and the world. This also has caused low interest rates in the US as deflation was simultaneously exported to the U.S. People may worry about hyperinflation but deflation has been the concern of the Fed.

The US did the same thing as China did in the last 15 years to grow out industrial base during the roaring 20s. After World War I, America required that European debtors pay their debts in gold. America after World War I stockpiled 70%+ of the worlds gold supply and his caused capital flows to pour into the U.S. This also caused the hyper-inflation in Weimar Germany in 1921-1924. In economics, you can only stimulate an economy through increasing consumer spending, government spending or investment spending. If all these "pump primers" fail, history shows that the only way to prime the pump is to print money and purposely stimulate the economy by making your exports cheaper. The problem is that other nations will copy and this leads to the Smoot Harley tariffs that shut down the world economy in the 1930s.

China pegging the yuen to the dollar is doing the same thing as the Gold Stockpiling by the U.S. after World War I. With this yuen peg strategy, capital flows poured into China and caused a decade boom. The artificial boom will end in a major decade of deflation for China.

China is the US in the 1920s. They will go into a ten year global depression like the US did in the 1930s. I think it will happen during the next major cycle crash around 2025. We are in 1998 all over again. In the short run, we'll see the 2000 crash all over again before a long crazy ride in real estate. The party will end in 7 to 10 years and it will be worse than the 2008 crash. 

How do you prepare? You maintain a portfolio of real estate for inflation and liquidiiy for deflation (cash, treasury bonds and cash value life insurance). Your must get out of the buy and hold long term mindset. With crazy high interest rates being driven by global deflation and here to stay for a while, expert a roller coaster in real estate every 18 years. Buy low and sell high. Rinse. Repeat. Don't buy to hold for 30+ years.

I am selling all my real estate in 5 to 7 years, wait out the peak, make money brokering hard money, packaging land for developers, making realtor commissions and wholesaling deals. I think there is like 5 more years to buy real estate and then go to a service model with the systems we have in place.

Don't believe in doomsday. It makes you a horrible investor. As Rothchilds say, invest when there is blood in the street. Or Warren Buffett says be greedy when others are fearful and fearful when others are greedy. When I look around, I am seeing greedy real estate investors now and so be fearful.

I doubt if it will keep foreign money out of the country. Prior to this, the Australian newspapers reported that many savvy Chinese investors had already started pulling money out of China and buying beachfront million dollar properties in Sydney and Melbourne. The report also mentioned them buying properties here in the USA. 

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