We’re heading into a recession.
To be honest…Australia is already in recession, but the stats won’t come out to confirm this for a little while.
So what does this mean for Australia’s property markets?
To be honest… I don’t really know!
Now I’m sure that’s not the answer you really wanted.
Clearly the impact of a recession on the property market will depend upon how long the lockdown conditions continue, how deep and how long the recession would be, how high unemployment levels reach how low consumer confidence falls and how effective government stimulus packages are.
The International Monetary Fund’s forecasts predict that global GDP growth will fall by three percent in 2020, compared with just 0.1 percent during the global financial crisis.
The IMF also expects Australia’s economy will contract by 6.7 percent in 2020 and then rebound by 6.1 percent in 2021, assuming that measures to contain the virus are successful.
The IMF’s economic forecasts are based on expectations that the coronavirus will be contained in the second half of 2020 and that there will be no second wave of infection, but they have warned of the potential for a second wave of the coronavirus if a vaccine is not developed.
However, economists seem to agree that the domestic economy is likely to experience a V-shaped recovery when it eventually comes.
What happened to property last time Australia fell into recession?
Australia last experienced two consecutive quarters of negative GDP growth (a recession) in 1990-1991.
Back then property prices had been flat or falling around the country even before the recession started.
However, overall house prices didn’t crash during the recession, in fact, some locations including Brisbane’s property market thrived, while the Melbourne property market was the biggest loser and house prices there fell 6%.
I remember those days well; Melbourne was in a deep recession and people were fleeing the cold grey times here to move to sunny Queensland.
In fact, people jokingly said, “Would the last person to leave Victoria turn the lights out.”
What happened to property values during other economic shocks?
The following chart by Kate Forbes, National Director of property strategy at Metropole shows the relationship between house prices and economic growth is not direct and simple.
While overall, property values have been very resilient to economic shocks, there is no one property market in Australia, and different states have responded differently depending on their own economic circumstances.
What does always happen is that transaction numbers decrease significantly, but as you can see from the following charts, economic shocks, world economic downturns and recessions don’t necessarily mean a crash in Australian property values.
In fact, the charts above from Corelogic show that housing values have generally held relatively firm during these periods before showing a strong upward trajectory due to stimulus measures such as low-interest rates.
But transactional activity has been more affected, with annual sales falling 39% after the Black Monday stock market crash in 1987.
The Asian financial crisis in 1997 saw housing sales fall by 22%, and sales were down 34% following the Tech Wreck in 2001.
More recently, the Global Financial Crisis saw the market activity drop by 23%.
What will happen to Australia’s property values in this recession?
This time around a drop in consumer sentiment and weaker economic conditions will again impact on dwelling values, but how much they will fall remains uncertain and will depend on how long it takes to contain the COVID-19, how long the social distancing regulations will be in force and what future additional support the government will give to shore up our economy and businesses.
I know some commentators are suggesting that house prices could even fall 20% or more, especially if the lockdown persists, the recession lasts a long time and unemployment levels get very high.
However, this is really a “worst case scenario” and definitely not the most likely scenario as we seemed to have “flatten the curve” and there is already there is talk of slowly but surely unravelling the lockdown and while many businesses are suffering they are keeping their employees thanks to the JobKeeper initiatives.
It has now been four weeks since the government shutdown non-essential services, placed a temporary ban on property auctions and open inspections and essentially halted the economy in response to COVID-19.
Corelogic recently reported that their Hedonic Index has been showing a loss of momentum in housing value growth rates since mid-March.
Data through to mid-April has seen a continuation in this trend, with the combined capital city measure slipping into negative territory week-on-week for the first time since early August last year.
While A grade homes and investment-grade properties are likely to fall a little (5- 10%) moving forward, this is a great time for cashed-up investors and homebuyers planning to upgrade to buy a property considerably cheaper than they would have had to pay a few months ago, and for considerably less than they will have to pay this time next year.
B grade (secondary) dwellings may fall in value by 10-15% and C grade properties are likely not to sell at all.
Sure there are fewer good properties for sale at the moment, and almost all the good ones are for sale off-market, however, if you’d like to know a bit more about how to find these investment gems give the Metropole team a call on 1300 METROPOLE or click here and leave your details.
So is now the right time to buy property?
Having spoken with many property investors, business owners and entrepreneurs recently I’m finding their thinking in three different ways: –
- Some are fear focused. They’re panicking, they’re frozen, they think the world is coming to an end. They don’t have a long-term focus
They are closing down their businesses or selling up their investments.
They can’t see a future for themselves or their businesses and that’s a real tragedy because they won’t make it across the proverbial bridge the government has been building for us.
2. Others are going into hibernation mode.
They’re bunkering down. They buy all the rice, pasta and toilet paper they can and stay low to ride it out.
They will cross that bridge but will experience lots of ups and downs in the meantime and lose a year or so of their life in the process.
3. Then there’s a small group of strategic investors and business owners who are positioning themselves for the future.
They recognise that there is currently a strategic window, the time between now and that survival to get set to take advantage of the opportunities that always abound after severe downturns.
As property investors they are working with their consultants to set up a strategic property plan, they getting their financial and ownership structures in place and doing the appropriate research.
They’re not trying to time the market, but they want to take advantage of the opportunities the market is currently and will in the future be offering.
These strategic investors know that people will eventually come out of lockdown and want to get on with their lives.
These strategically focused investors know it looks bad today, it might even look bad tomorrow, but they’re prepared to hang in there, they’re prepared to lay the foundations for their future success.
Despite the headlines, they know that the world will not going to end.
They are prepared to bet on humanity.
They recognise that how they think and what they do between now and that survival line will determine their level of success when we move on to whatever our new normal will be.
So how are you thinking?
In which of these three groups of investors do you want to be?
Now is the time to take action and set yourself for the opportunities that will present themselves as the market moves on
If you’re wondering what will happen to property in 2020–2021 you are not alone.
You can trust the team at Metropole to provide you with direction, guidance and results.
In challenging times like we are currently experiencing you need an advisor who takes a holistic approach to your wealth creation and that’s what you exactly what you get from the multi award winning team at Metropole.
If you’re looking at buying your next home or investment property here’s 4 ways we can help you:
- Strategic property advice. – Allow us to build a Strategic Property Plan for you and your family. Planning is bringing the future into the present so you can do something about it now! This will give you direction, results and more certainty. Click here to learn more
- Buyer’s agency – As Australia’s most trusted buyers’ agents we’ve been involved in over $3Billion worth of transactions creating wealth for our clients and we can do the same for you. Our on the ground teams in Melbourne, Sydney and Brisbane bring you years of experience and perspective – that’s something money just can’t buy. We’ll help you find your next home or an investment grade property. Click here to learn how we can help you.
- Wealth Advisory – We can provide you with strategic tailored financial planning and wealth advice. Click here to learn more about we can help you.
- Property Management – Our stress free property management services help you maximise your property returns. Click here to find out why our clients enjoy a vacancy rate considerably below the market average, our tenants stay an average of 3 years and our properties lease 10 days faster than the market average.
- Coronavirus – How will it impact Australia’s property markets? Your 20 most common questions answered.
- Brisbane property market – how will Coronavirus affect it?
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