Kenneth Writes: How might a possible economic collapse (real estate and banking) in China affect the real estate market in the United States?
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Welcome back to Real Investing. I’m Tim Herriage. Thank you for swinging by today. Kenneth writes, “How might a possible economic collapse real estate and banking in China affect real estate market in the United States?” Great question, Kenneth. Good to see you back. It’s interesting, global intertwinement is on the rise. When you look at the dollar being the safe have with so many countries, I mean, I hate to say it, in my opinion, an economic collapse in China, which, number one, I don’t think will happen because they have the ability to just push a button and make everything go away because they control everything, but anyway, I don’t think that’s going to happen because when you look at it, we’re just insulated.
At the end of the day, the Chinese market is largely driven by the government. Now, will our equities be okay? No, I mean the ADRs and the other ETFs will struggle if there was a collapse as you put it. But I believe that the commercial real estate would be impacted, large commercial properties, some of the multifamily properties. The big large REITs could potentially see an impact. But as far as the residential real estate market, I mean, we’re operating in almost the stone ages right now. It is just purely a supply and demand market.
Unless interest rates just went through the roof, out the building and into the stratosphere, I don’t see a scenario where anything going on in China could impact US real estate enough. Does that not mean that if they completely shut everything down, it wouldn’t mess with rates a little bit? I guess. But what would it really do? Probably drive up the short-term rate, which would then drive down the long-term rate. I don’t know. I mean, if it drove up the long term rate, because if there was oversupply and demand for the Treasuries, the two and the tens, I guess you could see that impact long-term rates. But I don’t know. When I look at it, we’re going to be affordability driven the next three to 10 years.
I’m not sure if there was a disaster declaration and the government started building houses if we could catch up anytime soon. It’s just my opinion. Of all the things I look at, something happening in China that was contained to China and China’s financial markets, I don’t see that impacting us a whole lot, other than, here’s the thing, supply chain, building materials. That could be affected. If that’s affected, again, we go back to the supply and demand equation. You have less supplies, then even less demand is offset, just like we’re seeing in the market today. Hope that helps, buddy.
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