At the start of 2019 I said one of the biggest issues we will face in 2019 is the potential for trade wars. The imbalances between several of our trading partners are bad and need to be addressed, and the hope was that a fair and balanced trade deal with China would be struck in the first half of 2019. This has not happened....yet. So why do I care about this topic? How does this impact real estate? Here are some of my thoughts:
1. Trade wars are an item of uncertainty, and markets generally don't like uncertainty.
2. When there is economic uncertainty, people like to 'wait and see'. They also hold back out of fear that their wealth may decrease. So far the trade war has cost around $5 trillion in stock market losses.
3. The word 'war' is not an optimistic one at all. Markets are driven by mood. This is not a mood-lifter.
4. We are a country that attracts many foreign born and related consumers into the real estate markets: trade wars make foreigners feel unwelcome and fearful. Chinese investors have been the single biggest home buyers in the past 6 years.
5. Trade wars result in tariffs....another word for a tax that is mostly picked up by the consumer. Many tariffs have already boosted the cost of numerous building/construction components, further eroding affordability.
6. Higher prices lead to inflation. Inflation causes incomes to rise....including those of construction workers and everyone who makes all the products that go into building and renovating homes.
7. If prices trend upwards leading to inflation, interest rates could rise again. Higher interest rates are never great for real estate markets. They are worse for corporate (and personal)debt as servicing that debt costs more which can take away from spending, investing and hiring.
Let's hope a fair trade deal is resolved soon.