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(Image: AAP/Andrew Matthews/PA Wire)

How will this recession affect the housing market in Australia?

How badly a recession affects the housing market in Australia versus how easily the Australian housing market bounces back after the recession depends on a number of variables, including the length of lockdown, the length and depth of the recession, the levels of unemployment across Australia, how effective government stimulus packages are, and how consumer confidence is affected, both during and after the recession.

Let’s examine what happens to the housing market when a recession hits in terms of supply, demand and cost.

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How does a recession affect the housing market? | Supply

Historically, the supply of housing tends to increase at the beginning of a recession, for obvious and not so obvious reasons. Among the obvious reasons is that people are less confident spending money due to job instability.

Right now, due to the coronavirus lockdown and interstate restrictions, people are more likely to stay put where they are, either in their owned or rented homes.

Of course, there are people who are professionally and financially stable. These cohorts have a better chance of benefiting from lower housing prices that may begin to crop up later in the year, although economists say it will be difficult to forecast how housing prices will be affected in the coming months due to the unpredictable nature of the coronavirus.

Among the not so obvious reasons why supply may be higher is migration to Australia. In 2019, 533,500 people migrated to Australia. As international borders are now closed, there has been a huge drop off in the number of people who are choosing to settle down under. This means there is likely to be a higher number of vacant homes, whether they are short- or long-term leases or permanent residencies.

How does a recession affect the housing market? | Demand

Naturally, we would assume demand for housing during a recession would subside due to higher rates of unemployment and less financial stability.

The latest REA Insights Weekly Demand Report illustrates that after a slow few months, there has been a higher volume of buyer activity on realestate.com.au nationwide, with an increase of 0.8% last week.

Upside reports: “High-intent listing interactions (characterised by activities such as looking at photos of a listing multiple times, saving the property and making an enquiry with the agent) on realestate.com.au have more than doubled in the past 10 weeks, an increase of 36.3 per cent compared to the same time last year.”

How does a recession affect the housing market? | Cost

House and unit prices fell an average of 0.4 per cent across Australia during the month of May, however, the numbers show considerable variation across the country.

Source: CoreLogic

Despite plenty of negative forecasting for home and unit prices, Tim Lawless, head of research at CoreLogic says: “With restrictive policies being progressively lifted or relaxed, the downwards trajectory of housing values could be milder than first expected.”

Whether you’re thinking of buying or renting, there is no certainty on how the recession will affect the housing market in Australia at this time. What is certain is that the length of lockdown, and whether or not there will be a second wave of coronavirus, will act as deciding factors on the future of housing supply, demand and cost.

Read: Eight ways to recession-proof your finances

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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