Downturn in Chinese Market Impacting Thoughts of Investing on RE?

Question

Hi All - My husband and I are in the beginning phases  of closing on our 2nd rental property in Seattle (Lynnwood 19 miles north to be exact).  Pretty stoked about this.  However, we're getting a bit worried due to all the reports about the Chinese stock market woes and the ripple effects this may have on other markets and the world in general.

My question is, should we pull out of this negotiation at the inspection phase and wait for the market to improve?  We don't want to complete this transaction and then get smacked with another major economic downturn.  What are your thoughts?

Thanks in advance.

Account Closed · Answer

That is a positive for you The crackdown on corruption and other reforms has made it even more imperative for the wealthy Chinese to move their money overseas.

Sam Van Horebeek · Answer

@Ana Marie B.

Probably some local experts can comment on the market in Seattle and see whether it is a good investment in the long term.

From a China perspective, I can tell you that the volatility might have more positive than negative.  Many Chinese are keen to get the money out of China in line with their diversification strategy.  Based on a study that our team did in China following the stock market decline last summer, many respondents indicated that they will invest more in the overseas property market. See also the news on CNBC. Of course, as someone mentioned already, this fear might be contagious and create issues in the US/Europe markets.

Good luck!

Adrian Chu · Answer

I would not be worried. Mainland Chinese investors are only a small fraction of buyers in the Pacific NW.  There is a much higher concentration of them in the Bay Area and So Cal.  They mainly buy in Bellevue and the Eastside anyway, so Lynnwood should not have much effect (if any).

Lynnwood is a very good area with lots of new commercial and transit oriented development and still easily commutable by bus to Downtown Seattle, yet will also benefit from Boeing and the aerospace sector up in Everett.

In general: don't buy the most expensive house on the block, buy the least expensive.  :)

Best of luck!

Simon Shih · Answer

Being Chinese and having a direct pipeline into the Chinese economy, I know exactly where....HA! Just kidding. No one knows. I would and am moving forward on my deals. I would suggest you do the same.

Wilson Churchill · Answer

I'm not too concerned about the housing market, but I moved all of my 401k money from a generic retirement fund into a stable value fund. I expect a large decrease in the markets.. I will wait until I see a good opportunity and manage the funds myself. If oil gets to $20 per barrel, I may move the 401k into Chevron or another oil stock for a year or so.

Unless there is another wave of pending foreclosures, then housing prices should be fairly stable.

Shaun Reilly · Answer

I recently wrote a blog post about this.

http://masshomesale.com/2015/12/02/chinese-buyers-...

Hope that helps.  :)

The moral of the story is that nobody can really predict what will happen with that economy and how it will effect our markets.

If your number look good and you like the deal then I would not let that stuff stop you.  If it is borderline already then maybe getting spooked is a good thing.

Ana Marie B. · Answer

Makes sense @Sam Van Horebeek. Thx for your feedback!

Adrian Chu · Answer

Best of luck.  Lots of good opportunities for buy and hold up here compared to the Bay Area.

Ana Marie B. · Answer

Thanks @Adrian Chu! Appreciate your insight. Yes, we viewed several homes both south and north of Seattle and really liked the north this time around. Really hard to find deals as everything seems to get snatched up quickly.  We already own a rental in Ballard, but prices have shot up since last year so we needed to look a bit outside.

Douglas Dowell · Answer

I recall my econometric professor of mine saying if anyone claims to have a forecast of more than a year their either a fool or a liar errr rating agency.  Therefore, a true Buffett/Munger approach would be to be able to stand the downturn.  Worst case scenario what will happen?

On a scale of Zombie Apocalypse to sprinkle on the head this current China contagion is vexing.  On a direct basis it doesn't seem we are overly exposed to China. The real threat is the fear contagion in my oooooh so humble opinion.

Downturn in Chinese Market Impacting Thoughts of Investing on RE?

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