Joe Tsai, Co-Founder of Alibaba, Says That There's A 'Wealth Effect' From Property Downturn

Alibaba co-founder Joe Tsai said that he's noticed that a wealth effect from a property downturn tends to make consumers more hesitant to spend their money — here's why. 

In an interview with Norges Bank Investment Management, Tsai spoke about all things wealth, including consumer confidence during property downturns. He provided context on the Chinese economy, explaining that it makes up about 31% of global production, but its consumers participate in around 14% of global consumption. Compared to the U.S., with consumption over 70% in the global economy, Tsai feels that "Chinese consumers need to come into more significance and rival that of Western developed markets."  

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Tsai explained that when the housing market experiences a property downturn, it can erode consumer confidence, especially if money and investments are tied up in that property. The wealthy spend less because they don't feel as wealthy. Tsai claims that average property prices have come down by 30% in China, which can be scary for real estate property investors and consumers. 

In contrast, the National Association of Realtors (NAR) reported that median sale prices for U.S. homes reached record highs in February 2024. Home prices are rising faster than people’s wages and mortgage rates have reached 23-year highs. According to data from Realtors.com's 2024 housing market report, rates have increased by 2.9%.  

In 2023, the U.S. housing market fewer people were buying houses. Rising house prices, high mortgage rates and a lack of supply were major contributors. As the U.S. tries to avoid a recession, interest rates will probably remain high. People fear that a crash in the housing market is imminent, although experts say that a lack of inventory makes a drop unlikely. 

Rick Arvielo of New American Funding said, "You're not going to see house prices decline. There's just not enough inventory." 

Tsai said that young people worry more about getting jobs than purchasing property. He explains that this fear is real. He points out that his own company is not hiring and that he believes people are not certain of their future stability, especially college graduates. 

Tsai explains that while Chinese citizens have high savings and household cash is strong, consumer confidence is low. In the U.S., consumer confidence can be influenced by the general elections in November. Depending on the outcome of the elections, consumer confidence could improve or decline.        

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