IF THERE’S A RECESSION, WILL PROPERTY PRICES FALL?

It has been over 30 years since ‘the recession we had to have’ in Australia, and over the past three decades the economy has experienced a stretch of growth with only a few brief downturns. That means that unless you are over 50 you haven’t experienced or worked through a recession in terms that you can contextualize its implications.

There is a lot of talk in the media about whether or not Australia will go into recession, which means we have had lots of questions about what that will mean for the property market.

To recap, while there is no exact definition, the RBA defines a recession as:

“… a sustained period of weak or negative growth in real GDP (output) that is accompanied by a significant rise in the unemployment rate. Many other indicators of economic activity are also weak during a recession. For instance, levels of household spending and investment by businesses are usually low. In addition, the numbers of households and businesses that are unable to pay back loans are unusually high, as is the number of businesses that close down.”

What we are seeing at the moment is a lot of commentary from people who don’t fully understand what unfolds in the property market when the economy changes. During a recession, we often see a reduction in interest rates. We then have people saying:

“If interest rates rise, the property market will crash.”
“If we have a recession (when interest rates drop) the property market will crash.”

According to these ‘experts’ the market is going to crash either way…?

What we do know is we are in the midst of the greatest housing crisis in a generation. There has never been as much pent up demand as what exists today, and we are about to open the door to a million migrants. If anything, we can be confident that the right areas for property will continue to perform very well.

If, hypothetically, we do go into recession, we believe it is likely property prices will flatten out with the exception of a few key areas such as the Sunshine Coast due to high demand where we expect the market to continue to rise. Not the medians necessarily, not high end property, but the majority of the market and especially in the least expensive end of the market. We do not believe people should be waiting for the market to ‘crash’ to buy as it is unlikely to happen, especially on the Coast. A recession might slow the market, but it won’t cause it to crash.

When purchasing or investing in property it is important you assess what you are looking to do and achieve. If you are buying and selling in the same market, what is happening is irrelevant. If you are investing and looking for a return, do your research. There are areas that haven’t been good to invest in and now are, areas that will never be good to invest in, and areas that are likely to outperform.

Contact Investor Property today so we can help you understand the market and how you can create an investment strategy to suit your needs and goals. PH 13 31 32 or email enquiries@investorproperty.com.au or simply hit reply to this email.