China’s Chickens Come Home to Roost** or,
Is the Opposite of the “Wealth Effect” the “Poverty Effect??”

Normally, I tell prospective home Buyers and Sellers to tune out “macro” factors like the broader economy, (un)employment, etc. and instead focus on “micro” factors affecting the specific property they want to buy or sell.

So, forget about the 16,000 or 17,000 homes currently for sale in the Twin Cities.

What matters is at most 8-10 homes:  the 3-4 best Comp’s (“Comparable Sold Properties”); any relevant “Pending” homes; and competing “Active” homes (note:  not the ones with pie-in-the-sky asking prices that are poorly staged, marketed, etc. but well-priced ones that are primed to sell).

Cue China, Interest Rates

That’s all still good advice that I stand by, but now is one of those intervals when it feels like “macro” factors may temporarily, umm . . . trump overshadow micro ones.

They include:

–China’s slowing economy, crashing stock market, and devaluing currency (“the yuan”);
–the Federal Reserve’s stated intention to start raising short-term interest rates (the ones they control), albeit from microscopic levels;
–the effect rising short-term interest rates will have on (long-term) mortgage rates;
–the flip side of the Fed Reserve’s “wealth effect” as the price of equities, other assets fall (“the poverty effect??”).

With all those balls (and uncertainty) in the air, I see two possible effects on the near-term housing market:  1) nervous Buyers make their move now, before mortgages go up and their purchasing power diminishes; 2) the market pauses until the dust settles.

Which way will things break?

Stay tuned . . . 

**China has widely been perceived to be manipulating (overstimulating? propping up?) its stock market and broader economy for years, with unsustainable long-term policies (some would say the same about the U.S. and Federal Reserve).

About the author

Ross Kaplan has 19+ years experience selling real estate all over the Twin Cities. He is also a 12-time consecutive "Super Real Estate Agent," as determined by Mpls. - St. Paul Magazine and Twin Cities Business Magazine. Prior to becoming a Realtor, Ross was an attorney (corporate law), CPA, and entrepreneur. He holds an economics degree from Stanford.

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