Australia property market in recession

What Happens to the Property Market in a Recession?

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Fears of a US recession were ignited after the US-China trade war shook up global stock markets, including the ASX which saw $60 billion wiped from the local bourse last Thursday.

While economists don’t predict this on the cards, a US recession would nonetheless have direct implications for global growth – which will ultimately hit our local economy.

But will that have an impact on our property prices?

It’s jobs we need to worry about.

First, although the media has started to use the word recession, this does not necessarily mean financial disaster; to be considered in recession, the economy simply has to experience two-quarters of negative growth – far from double-digit unemployment and extensive bankruptcy that many may imagine.

Thankfully, the jobs market is still quite strong; there were 41,000 jobs added in June and the participation rate is rising to a record high of 66.1 per cent.

The property market looks well-supported as one of the elements that would lead to a falling-out of the market isn’t there.

The wildcard: Consumers

However, that doesn’t mean that we’re safe: how consumers spend will ultimately drive or prevent the nation into falling deeper into a recession.

If our economy slips into recession there will be a lot of media coverage that is likely to cause consumers to stop spending until the future looks clearer.

It’s a bit of a self-fulfilling prophecy: if the media tells Aussies we’re in a recession, people will cut spending and hold off from making big decisions like buying a new home or upgrading if the economy isn’t looking good.

Which areas could be hit hardest?

Say we do go into a recession: not all areas will be hit in the same way.

During the global financial crisis, Australia narrowly avoided going into a recession – but as the crisis was driven by the banking sector, Sydney – Australia’s premier finance hub – was worst-hit, while Perth fared particularly well thanks to the mining boom that helped create jobs and wealth.

The areas that see the biggest increases in unemployment will have the worst hit housing markets.

But, in a trade war, some parts of Australia may fare better than others.  ANZ’s Nerida Conisbee has argued that one scenario could be a big lift in the WA economy as the US-China trade war forces China to buy more mining and agriculture from Australia, as opposed to the US.”

“Melbourne and Sydney are more sensitive to multinationals cutting jobs and may be hit harder,” she said.

“If this is the case, it could look like a post GFC-type impact.”

The bottom line

Recessions are never good news.  But, their impact on the property market may not be as bad as many fear.

If we go into a recession, it will be mild – such that most Australians will retain their jobs.

Perhaps more importantly, we are likely to see interest rates drop even further.  It’s not unheard of for property to boom in recessionary times.

Disclaimer

 

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