A question for everyone: If interest rates increase rapidly this year and next, what will happen to different asset classes?
Stocks: Credit Crunch, Down!
Bonds: Interest rates rise, fall!
Real estate: Affordability is getting worse, falling!
Cash: High inflation, depreciation!
I feel that everything you buy will fall, and if you don’t buy, money will depreciate!
In this embarrassing situation, how should we choose? I think a good way is to see where the capital goes? See what investors are buying.
Nowadays, almost no real estate investor buys freehold houses; everyone buys small condos. In the past two months, a new investment client has come in almost every few days, and the requirement is to buy a condo under the budget of $800,000!
Some friends may say that these people are “herd effect” and become leeks sooner or later. However, in the past so many years of experience, I found that the capital made the right choice most of the time. On the contrary, many “smart people” who thought they could operate in the opposite direction fell into trouble.
For example, the condo market was screaming at the end of November 2020. Due to the pandemic, there were unsellable condos everywhere. The number of condos on sale was three times that of previous years, and the number of buyers was poor. Only one person comes to see it every week for condo sales on average. In the rental market that maintains cash flow, the vacancy rate of many buildings is as high as 15%, and the rent has dropped by 20%-30%.
In such a bad situation, it is widely believed that condos will continue to fall. But unexpectedly, from the end of November to the beginning of December, 7 or 8 buyers who said they wanted to invest in a condo suddenly appeared here.
In the absence of any policy changes, the market suddenly became active in December, and house prices rebounded rapidly. By mid-January, house prices had fully recovered to the pre-YQ level. My 7 or 8 customers have not bought a set yet, and the house price has gone up. The keen sense of capital smell really surprised me.
Why are investors now investing in condos? I analyzed the following reasons:
- Once interest rates are raised, and new policies are introduced, the freehold market is at risk of a sharp drop.
- The cash flow of the condo is better. If the market falls, sellers can usually afford it. In the fall of 2020, with such an unfavourable supply and demand relationship, housing prices only decreased by 10%, which shows how strong the condo market is.
- If the market does not fall and continues to rise, the condo will follow suit, and it will not go empty.
However, even if the prospects of the condo are promising, everyone should not ignore the risks. The market uncertainty in this year and next year is considerable, and high leverage is not recommended. In case of rapid interest rate hikes and poor cash flow, everyone should afford it.
What do you think of the market this year? Welcome to comment below.