02 May VIDEO – Australian real estate prices still rise during recessions – Simon Pressley
Many people think that during recessions, property prices are bound to fall. However, we explore with Simon Pressley of Propertyology why that might not be the case.
In the Recession Era (September 1990 to 1991), property prices across most of the capital cities did not fall. The values in Perth fell in 1991 to 1992 by around -10%, but the city more than made up for it in 1993 and 1994 with a phenomenal growth of 50%. It was second only to Darwin, which grew by 55% in 1994.
Sydney and Melbourne, on the other hand, were among the worst performing markets in the recession. But what’s noteworthy is that they still grew. Sydney had around 17 to 18% growth while Melbourne had around 5 to 7%. Affordability probably had some part to do with their relatively low growth since property prices in both Sydney and Melbourne have always been high.
“The biggest impact, whether it’s a recession or economic times, generally speaking, is that stronger local economies feed into stronger property markets. So the stimulus for our property market kicking off is there is an economy going from not so good to progressively going quite strong.” Simon Pressley says.
During the Global Financial Crisis (late 2008), Australia responded with a series of significant interest rate reductions, around 4% and a $50 billion stimulus package that prevented the country from going into a recession. In 2011 and 2012, some capital cities declined in value.
By 2014, nearly all of the capital cities have recovered from the financial crisis. Only Berri reported negative growth.
Now as we’ve said in the intro, the word recession is something to fear for many of us. But Simon Pressley says it’s not something to be scared of. “We need to pay attention to “recession” and what it means, but it’s topical, whether we actually go into recession or not.” What’s important is the context around it. Australia’s economic fundamentals are better now than they had been at any time since the last 50 years, so we don’t have much to fear from it.”
“The single biggest risk is the credit supply,” He continues. “If we go into recession, which is a possibility, I believe that in the next 12 months, it will be 100% self-inflicted. Because we have stripped out a lot of money from our cash registers by not making credit to people who should have them.”
But it has been 30 years since Australia’s last recession and every single state and territory has had no less than 3 recessions over that period of time. New South Wales, which has been lauded as for six years as the best performing economy in Australia, was in recession as recently as 2012.
But what is recession, exactly? It is when GDP growth is either negative or stagnant for two consecutive quarters. A period of time when the economy does not grow.
To summarize, Simon says that local factors are the biggest influencers in property markets, even during recessions.
“…local factors, not the macro factors, the nation’s in recession, or interest rates are going high… they have certainly have a broad impact.
But what has the biggest influence is local jobs, local confidence, local housing, affordability, local levels of supply. In every year, whether it’s a recession year or an economic boom, they’re always going to be different from city to city. And that’s why it’s always a good time to invest in property.
The question is never when it’s always where. In or out of recession.”