What happens to the property market in recession

*This article appeared in the October 2019 Midland Express

With the US-China trade wars shaking up global stock markets, concerns have been raised that a US recession could be on the cards. A US recession would nonetheless have direct implications for global growth – which will ultimately hit Australia’s already struggling economy.

So if a recession did hit Australia (two negative quarters of GDP), what would happen to the national housing market? Is the Australian real estate sector really as safe-as-houses?

The last time Australia went into recession was in the early 1990s. Research conducted by Propertyology confirm that the property markets of various locations in Australia produce growth as high as 20 per cent during our last recession and also during the Global Financial Crisis (2008-09).

While an international or national economic downturn is never good for our property markets in a broad sense, the fundamentals of individual cities and towns comes into play when understanding how a downturn might affect the market.

Let’s look at what happened to house prices back then. Nationwide, house prices had been flat or falling even before the start of the recession. The flat spot continued for a while, but before the recession ended, house prices nationally (with the exception of Sydney and Melbourne) quickly began to bend back up.  Sydney and Melbourne eventually rebounded.

The idea that house prices can move very differently in different parts of the country is not an unfamiliar one in Western Australia, where house prices sank dramatically as the mining boom receded. Consider also that the offices of many multi-national corporations have offices in Sydney and Melbourne, and you are getting a sense of how reductions in employment during a recession can impact the market.

The relationship between house prices and economic growth is not direct and simple. Serviceability of loans remains a critical factor when we consider the impacts of a recession and property.

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