The US housing market is not a stand alone, autonomous entity. It, like every other market, is a symbiotic entity…it both affects and is affected by everything, everywhere.
China has been a big player in US real estate markets for a long time now. In recent years, China’s residential and commercial property outflow has ballooned as both individual and institutional investors have looked globally for real estate investments. US real estate markets, both residential and commercial, have been beneficiaries of that property outflow to the tune of $18T.
Will this outflow of Chinese capital into US real estate markets continue? No. The Chinese government wants all that money to stay home now and has placed some would say “severe” restrictions on that money leaving the mainland.
Larry McDonald of the Bear Traps Report said that the ‘winner’ in the Chinese government’s efforts to pull back on capital outflow will be mainland China’s equities markets as “…more investors in China will be forced to keep their money at home.”
Real estate professionals here, particularly those on both coasts, are already feeling the absence of that capital from Chinese nationals. The National Association of REALTORS (NAR) tells us that foreign investors are 20% of US real estate markets and Chinese nationals are the majority among those foreign investors. No wonder real estate professionals are feeling that absence and loss.
The US stock market also has a symbiotic relationship with the US housing market. Why? Both markets are focused on the same thing…interest rates.
Usually, when interest rates go up, the stock market takes a beating…a beating much like the one the market has been enduring these last couple of weeks.
Daren Blomquist, senior vice president with ATTOM Data Solutions, speculates, “The strength of the housing market (and yes, Blomquist thinks the housing market is “still strong) and the economy in general is what’s spooking the stock market because housing and other sectors of the economy are doing so well, there’s concern the Fed will continue raising interest rates.”
On the other hand, some see the turmoil in the stock market as a reason to slow down the ascent of interest rates as a way to calm the stock market. But, slower interest rate hikes by the Fed could lead to slower home price appreciation.
The Fed is expected to and has all but announced another interest rate hike by the end of the year. Likely, that will lead to continued volatility in the stock market. More volatility in equities may encourage investors to re-evaluate their portfolios and decide real estate provides a better opportunity for returns than stocks.
On another hand all together, Blomquist speculates that increased volatility in the stock market may “…spook investors about investing in anything and ‘anything’ includes buying a home.”