Can the current recession be avoided?
The short answer is no. Most economists believe we are already in a recession. What we can avoid is the severity it has on our economy.
In 2007 – 2009 Australia feared the Global Financial Crisis. As a result, the Labour government strategy to dodge a recession was to spend up big.
Every Australian received $1000, massive building schemes where implemented and schools & small business where given large building grants in efforts to stir the economy.
Overall, the recession bypassed Australia and Asia with little effect. Many economists were unsure if the Government stimulus had any effect at all.
An important factor to note is real estate price saw a decline of approximately 10% in Melbourne and Sydney.
This time around more countries are affected by economic shutdowns; the global shutdown of our economies looks more like the great depression after World War 2 than any recent recession in history. How quickly the globe recovers from this will determine how deep the recession will be.
Australia’s last recession and what happened to property prices.
Australia has not had a recession since June 1991. The recession started in the September quarter of 1990 and lasted until the September quarter of 1991.
During the recession, GDP fell by 1.7 per cent, employment by 3.4 per cent and the unemployment rate rose to 10.8 per cent. Like all recessions, it was a period of disruption and economic distress.
So what happened to house prices?
In 1991, real estate prices declined mildly: Melbourne 2.3%, Sydney .07%, Perth 1%.
Overall, property prices in Melbourne fell by approximately 10% and didn’t recover to 1989 levels until 1996.
During a recession, at what point is it a good time to buy?
No one wants to get in too early, especially when prices are falling. But you don’t want to see a great buying opportunity evaporate either.
Any seasoned property investor will tell you that property is a long-term game. How long is long term? Real estate cycles usually flow in 7 to 10-year periods; during this time property prices tend to double.
In the last two major real estate declines, (1991 recession and 2009 GFC) property prices fell about 10%.
So, by looking at history, getting into the market once prices have dropped by 10% is a good point. It’s probably better to get in once prices have dropped 5% to 8%. Sometimes this saving can be made simply by having a good negator on your side.
What to look out for when buying property in a recession.
Buyers beware, many properties on the market can be plagued with issues due to financial stress on the sellers, forcing them to sell a property as it is.
In a good real estate market, everything sells and buyers spend a lot of money prepping a property for sale. This includes renovations, decluttering and making sure all the bills are up to date.
In a recession, the chances of buying a problem property heighten. To the untrained eye, buyers can inherit things like:
- A sonky renovation.
- Major repairs or maintenance that has been hidden.
- Unpaid rates & body corporates bills.
- Ongoing financial disputes with neighbours or council.
It’s important to do your homework and know how to factor in the cost of the above when negotiating a property.
2009 – 2010 GFC the high end of the real estate market experienced the sharpest price drop. Why? Families will always need a place for affordable housing – the bread and butter property. Paying premiums for expensive trendy inner-city suburbs stops making sense in tough times.
How do you get the best deal on property in a recession?