Australia’s property market is showing signs of improvement as green shoots are beginning to emerge. Australia’s realty market is poised for recovery, with the downturn at its lowest point, auction markets experiencing renewed interest, mortgage rates dropping further, and lending regulations becoming more strict. However, what would happen if external factors trigger a financial downturn — will the recovery be gone in a heartbeat?
Many indicators are subtle that point to a recession worldwide. John Murphy, an economist from the United States, stated that there are tell-tale signs that indicate a recession due to trade issues.
A recession is defined as two consecutive quarters with negative economic growth.
Murphy stated that “Another way of putting it is that while the total income earned shrinks across the entire economy, the normal state is an ever-rising income.”
Australia was able to avert the worst effects of the US recession in 2008 and 2000, but it isn’t certain that it will be able again should it experience another downturn.
“Back then, the economy was less resilient. We have already cut interest rates to record lows. This means that we have less space to apply monetary policies. Murphy stated that the RBA would not be able to reduce rates in a downturn as it normally would.
Another problem with Australia’s current situation is the high level of household debt, which cannot be pacified due to sluggish wage growth. A recession will only make spending habits worse and negatively impact the housing market.
What does a housing market slump mean?
Australia was in recession at its peak in the early 1990s. At most, the country saw its economic growth slow for two quarters consecutively.
Even before the downturn commenced, house prices nationwide had already been flat — in some areas, dwelling values had already been falling.
Murphy explained that the relationship between house prices and economic growth may not be as straightforward as one might think.
When you add in different housing markets around the country, it makes things even more complex. He claimed that while the overall market is weakening, certain regions thrived.
This is an example showing what happened in Queensland and Melbourne during the recession. It was a tale of two states — over the downturn, Melbourne recorded price declines of more than 6% while Queensland remained steady.
Murphy said that “It was an era in which Melburnians fled a gray and morbid city for sunnier climates at the Gold Coast.”
Tasmania is a recent example. It survived the housing crisis throughout the country. Murphy stated that each state would be affected differently by the recession depending on its circumstances.
“The extent of the recession will decide where it is worst. If there is a financial crisis, Sydney will be hard hit. He stated that Queensland and Western Australia will be affected if the prices of resources fall. “The lesson of all this is that property prices can fall outside a recession, just as they can rise during a recession — and the national average can hide all sorts of risks and opportunities.”