Why Australian real estate prices still rise during recessions
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Apr 26, 2019
Why Australian real estate prices still rise during recessions
New research by Propertyology shows that prices still rise during economic downturns.
Depending on who you believe, the Australian economy is teetering on the brink of recession with property prices nationwide about to fall off a proverbial cliff.
However, in-depth research and analysis has found that property markets are resilient, with some locations even recording strong price growth during economic shocks.
The research confirmed that the property markets of various locations in Australia produced growth as high as 20 per cent during our last national recession (1990-91) and during the Global Financial Crisis as well (2008-09) far back as property data takes us, there’s never been a single year when property markets didn’t do well in many locations – never.
Since 1985, every individual state and territory has been through a technical recession at least three times, however, property prices did not stagnate.
New South Wales can probably boast the best economy over the past five years, but it was in recession four times in the past three decades.
While we all remember Sydney’s 2013-2017 property boom where property prices increased by 70 per cent, most have forgotten that New South Wales’ economy produced three out of four quarters of declining GDP in 2012-13.
A recession is defined as two consecutive quarters of negative growth in GDP.
What happened during Australia’s last recession?
Australia’s last recession started in the fourth quarter of 1990 and continued for 12 months.
While most people focus on the pithy catchphrase of it being the “recession we had to have”, few understand that property prices strengthened in both capital city and regional locations at the same time.
In the 1991 national recession year, there were mild real estate price declines in Sydney (0.7 per cent), Melbourne (2.3 per cent) and Perth (one per cent).
On the other hand, other capital cities such as Brisbane (6.8 per cent) and Hobart (4.3 per cent) produced quite solid growth in their median house prices, according to the research.
Like I always say, there is much, much more to Australian real estate than eight capital cities, because the research showed that spectacular growth in 1991 median house prices occurred in Rockhampton and Shoalhaven (both 20 per cent), Goondiwindi (19 per cent), Kempsey (18 per cent), and Newcastle (17 per cent).
Meanwhile, Mackay (17 per cent) and Tamworth (15 per cent) were also outstanding and Toowoomba, Margaret River, Wagga Wagga and Hervey Bay each had 13 per cent growth in 1991.
It’s always a good time to invest in real estate. The most important question is not ‘when’ but ‘where’.”
In the three years after the recession, the national unemployment rate hovered about 10 per cent, with it being closer to 13 per cent in Victoria and Tasmania.
In comparison, Australia’s unemployment rate is currently just five per cent.
Back then, though, property prices continued to grow in many areas because of each location’s unique economic footprint.
The year of the recession (1991) and subsequent three calendar years still saw a cumulative increase of more than 20 per cent in five out of eight capital cities as well as multiple major regional locations.
The moral of the story is that while a broad downturn on the nation’s economy generally does drag on the overall rate of property price growth that doesn’t mean that property prices everywhere decline in value.
There are multiple factors which affect property prices, including the fact that each individual city has its own unique economic characteristics, different levels of housing affordability, varying levels of housing supply, and a wide range of other local factors that influence buyer behaviour.
What happened to property prices after the GFC?
Even after the Global Financial Crisis hit in late 2008, median house prices still increased in every Australian capital city the following calendar year, with the exception of Perth (1.6 per cent decline), the research found.
A $50 billion Federal Government stimulus package had the desired effect of “manufactured” business and consumer spending, including on real estate.
Consequently, median house prices increased in every capital in 2010 with seven out of eight recording growth of between five and 12 per cent.
The real property market downturn directly caused by the GFC was not seen until after the stimulus package wore off.
Described by some as the biggest global economic downturn in the history of mankind, the cumulative decline in median house prices during 2011 and 2012 was less than 15 per cent.
Some capital city property markets subsequently rebounded strongly as did markets in various non-capital locations.
Is a recession likely?
While a technical recession within the next twelve months may be likely that didn’t mean that the nation’s overall economy or its property markets were on the nose generally.
Each individual state and territory plays it part in the formation of national accounts, with some location’s economies lean and some roaring.
A nation that doesn’t make a profit for a couple of quarters doesn’t necessarily mean it’s in tatters any more than a solid company having one lean year.
The performance of the individual economies of each Australian city and town will always be more relevant to individual property market performance than the broader set of national accounts.
Decades of factual property market results have taught us that.
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