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In the current economic environment, the real estate market has been in the spotlight. Many people are concerned about the rise and fall of house prices and the impact of these rises and falls on their wealth. There is an argument that if house prices fall by half, many people will be destitute and all assets will shrink. Is there any truth to this?
1. Real estate accounts for a large proportion of most households' asset allocation
In traditional Chinese culture, real estate has always been regarded as the best choice for maintaining and increasing value. Many families will put the majority of their money into a property in the hope of making a steady income. Therefore, for many people, property is not just a place to live, but also an important part of their wealth.
When house prices fall, so does the wealth of these households. Because a large part of their assets are real estate. If house prices fall, the value of their assets decreases, causing their wealth to shrink.
Second, the purchase of houses with high leverage multiplies the risk
In China, many people buy houses through loans. This highly leveraged way of buying a home allows people to enjoy the benefits of the property in advance, but it also exposes them to greater risks when house prices fall.
When house prices fall, the value of their property decreases. However, their loan amount will not be reduced by the drop in housing prices, and they will need to repay the original loan amount. As a result, their debt ratio has increased, and their wealth has shrunk even more.
3. Anxiety and panic caused by high housing prices
China's housing prices have always been high, which makes many people feel anxious and panicked about the rise and fall of housing prices. When house prices fall, many people worry that their wealth will be lost as a result, so they take some drastic actions, such as selling properties, which will also lead to further declines in house prices, forming a vicious circle.
4. The relevance of real estate to other assets
While property is a large part of many people's asset allocation, it's not the only asset. Many people's wealth also includes other assets such as stocks, funds, deposits, etc. However, there is a certain correlation between these assets and real estate.
When house prices fall, many investors will choose to sell other assets because they are worried about the instability of the market, which will also cause the value of other assets to fall. So, even if the drop in house prices doesn't directly affect your other assets, your other assets may suffer losses due to the overall instability of the market.
Fifth, the decline in the quality of life
In addition to shrinking wealth, falling house prices can have an impact on people's quality of life. Many people are burdened with heavy loans to buy a home, and their quality of life and consumption level are limited as a result. When house prices fall, the value of their property decreases, which also means that their wealth decreases, which leads to a decrease in their quality of life.
In addition, for those who invest in real estate, the decline in housing prices will also directly affect their earnings. If they choose to sell their property, they could face huge losses. And if they choose to continue holding the property, their income will also be reduced by the decline in house prices.
Overall, falling house prices do cause a lot of people to lose their wealth and quality of life. However, we also need to recognize that this is not inevitable. Because everyone's wealth status and asset allocation are different, everyone's risk tolerance is also different. Therefore, we need to formulate our own asset allocation strategy according to our actual situation to cope with the uncertainty of the market.
In the face of market volatility, we should not be overly anxious and panicked. We need to look at the changes in the market rationally and understand the operation laws of the market in order to formulate a more scientific and effective asset allocation strategy.
In addition, we need to understand our risk tolerance. For many people, investing in property is a relatively stable option. However, that doesn't mean they can ignore the risks. If their wealth situation does not allow them to take a large amount of risk, they should appropriately reduce the proportion of their investment in real estate to spread the risk.
Finally, we also need to recognize that wealth is not the whole story of life. Even if our wealth shrinks, there are still other ways we can improve our quality of life. We can enrich our lives and improve our well-being by working hard, learning new skills, and developing hobbies.
In short, the decline in housing prices will indeed cause many people to shrink their wealth and reduce their quality of life. However, we also need to recognize that this is not inevitable. We need to formulate our own asset allocation strategy according to our actual situation to cope with market uncertainty. At the same time, we also need to maintain a positive mindset and improve our quality of life in other ways.