Wednesday’s National Accounts figures will confirm that Australia, like most developed countries, was led into recession by the excesses of its domestic property market. A nation-by-nation commentary, including 8000 words of gory detail with links to the original sources, may be found on the LVRG blog.
Here we’ll cut to the money shot.
In the following table, “T” (for Turnover) means the fall from the peak in property turnover or related loans (direct figures on turnover being hard to find); “t” means an apparent glut of property for sale (another proxy for the elusive figures on turnover); “V” (for Value) means the fall from the peak in property prices; “R” means the start of the official recession; and “r” means one quarter of negative growth to date.
Except for Italy, the order is chronological, sorted first by the fall in property values, then by the fall in turnover, then by the onset of recession.
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Notice that a downturn in the property market, especially in turnover, is a leading indicator of recession. In no case did the onset of recession preceded the fall in turnover, and in only one case (Italy) did it precede the fall in property values.
Also notice that in the property market, a fall in turnover is a leading indicator of a fall in prices; the lead time is usually one to two quarters.
Given that the bursting of the US housing bubble caused the US recession, and given that 31 other countries had similar problems with their domestic property markets before they too fell into recession, it strains credulity to pretend that the other 31 recessions were all fully imported from the USA. A few of them, maybe; but not all of them, least of all in those countries with the worst records on housing affordability.
In Taiwan, however, the property bubble probably didn’t have time to cause the recession; if Taiwan were in the table, the T, V and R would all be in Q3 of 2008.
Other countries that went into recession without any help from their property markets were Germany, Japan and the Netherlands (all of which entered recession in Q2 of 2008), Mexico, Portugal and Switzerland (Q3 of ’08), and Austria (Q4). Their politicians can honestly blame external events. Ours can’t.
The implication for public policy is clear: if you want to prevent recessions, you have to prevent bubbles and bursts in the property market. Ways of doing that are briefly discussed in the aforesaid blog post.
For the record, here’s what that post predicts for Australia:
The bounce in employment in Apr.’09 probably represents a pull-forward of activity due to the anticipated expiry of the First Home Owners’ Boost — in which case the unexpected extension of the boost … will presumably spread the activity into the second half of the year. On account of this stimulus, positive GDP growth for Q2 of 2009 is not out of the question. But a contraction in Q1 looks inevitable.