World Recession and its impact on housing prices

World Recession and its impact on housing prices

According to economist discussions in many fora, recession is on the horizon. Well,let’s take an in-depth look at what’s occurred recently and in the past, so we can put your mind at ease about the word recession and its impact on housing prices. The official cash rate sits at 1 per cent. The Australian dollar fell to 0.67% US and unemployment rate remains at 5.2 percentile.

This outcome is linked to the trade wars occurring between China and the U.S. and also post-GFC growth waning. The U.S. has been in recession previously in 2000 and 2008. Many economists will argue that in both cases, Australia managed to dodge any repercussions. Other economists highlight that Australia had more resilience back then. 

This is provided that the credit squeeze subsides and the industry meets rather than exceeds demand. 

Australia’s last recession and recession housing prices

The last time Australia experienced a recession was in the 1990s. At the same time, recession housing prices were flat and prices were dropping in some areas. However, not all markets weakened during the 1900s recession. Melbourne recorded price drops of over 6%, but Queensland stayed steady. 

This is similar to what occurred in the latest housing market decline where Sydney and Melbourne’s prices plummeted and Tasmanian properties defied the downturn. Therefore, the way that the housing market will respond to a recession will depend on the type of recession. For instance, if it is financial, then recession housing prices in Sydney and Melbourne are likely to be hit the hardest.However, if the recession is resource-related, then Western Australia is the most likely to suffer. 

Historical housing price changes during economic downturn

Some markets showed little or no signs of change during an economic downturn due to the ability of their state, city or town economy to keep them buoyant. But historical data also shows that all Australian states and territories have experienced recession multiple times since the mid-80s. For example, Sydney faced nine months of declining gross domestic product during the 2012-13 financial year. During the 1990s recession, the national GDP dropped by 1.7%, and unemployment in Australia rose from 7.4% to 10.1%. 

In comparison, the Australian GDP rose by 2% and unemployment hovered around 5.2% during the first quarter of 2019. However many larger companies such as Big W are closing stores that are not performing and this could increase Australian unemployment levels. With the 1990s recession came housing price declines in some capitals, while other capitals realized growth. Sydney and Melbourne’s home values declined by 7% and 2.3% respectively, whereas Brisbane property prices increased by 6.8% and Hobart dwelling values rose 4.3%. 
Source: eChoice

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