Making home buying choices amidst interest hikes and trade wars

interest rate hikes

The U.S. Federal Reserve has finally raised interest rates by another 0.25%. Although Hong Kong has not followed suit yet, due to the peg between the U.S. and Hong Kong dollar, and the fact that the Hong Kong dollar is probing the weak end of its band, it’s only a matter of time when the Hong Kong Monetary Authority starts to sell U.S. dollars to stabilise the value of the Hong Kong dollar. Once the M3, Hong Kong’s money supply, starts to shrink, interest rates are expected to rise, as are mortgage rates, which home seekers should be prepared for. However, as the M3 total remains high, banks still lack the necessary conditions to raise interest rates immediately. As a result, currency traders can continue to make profits from the carry trade without having to face any risks. 

Most Hong Kong people think that there will be two more interest hikes from the U.S. this year. However, the Hong Kong interest rate has stayed the same, which caused a lot of ordinary home owners and home buyers to overlook the impact of the increased
interest rates. Sellers in the secondary market have been asking for high prices after Chinese New Year and at the same time, a portion of buyers are willing to spend top dollar on properties they have set their eyes on.

Since late March, Trump has been gearing up for a trade war with China. After replacing the Secretary of State, Rex Tillerson, and National Security Adviser H.R. McMaster, the new cabinet is filled with right-wing war hawks—a bad signal to investors who believe in global integration. In addition, following Trump’s announcement of new tariffs on Chinese goods, U.S. stocks plunged on March 22 and 23 and as Tencent Holdings’ gaming revenues trailed estimates, the city’s stocks plunged further on March 23, with the single-day transaction volume reaching a staggering HK$280 billion.

A friend of mine believes that since Hong Kong’s interest rate has always been extremely low, a 0.25% increase is unlikely to bring a big impact and the interest rate will still be within a reasonable range even with the expected two more interest hikes this year.
However, a Sino-U.S. trade war can be a lot more destructive. He suspects that if a trade war does happen, sensible investors will be cautiously looking on as the Hong Kong economy will inevitably take a hit. It’s advisable to be very aware of the possibility of banks tightening credit policies, or using it as an excuse to reevaluate properties and asking investors to pay for the difference between the two estimates. 

However, as home seekers who have steady income start to look for properties for self-occupation, investors and speculators taking an exit from the market poses a great opportunity for them to take a step in. It’s also possible for home owners to bring the prices down a little due to concerns over trade instabilities. Therefore, if buyers can withstand the financial pressure that comes with interest rate hikes, home ownership is still the most practical, compared to renting.