The U.S. is currently enjoying one of the largest economic expansions in its history. But what happens to housing and real estate during a recession?

Financial markets and real estate are joined at the hip: When one sneezes, the other catches a cold. So it is with great perplexity that we note a rare conflict of commonly accepted real estate principles as the declining cost of a 30-year fixed rate mortgage fails to produce the usual boost in home sales.

Until last year, no one bought more U.S. real estate than the Chinese. And that was true for the years 2016 and 2015, too. We loved them for it, too: They often paid more than the asking price and over two-thirds paid in cash. That was then, this is now: Chinese real estate investment in the U.S. has...