How will this recession affect the housing market in Australia?

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.

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

How long does a recession last for?

How long does a recession last for?

Recessions last 11 months on average.

Since the end of World War II, the length of recessions has ranged from 6-16 months, according to NBER data.

The last recession that Australia faced in the early 90s lasted from September 1990 to September 1991.

The Great Depression, which began in 1929, lasted for almost four years, and the Great Recession of 2008 lasted 18 months.

Recessions are defined as periods of temporary economic decline during which trade and industrial activity are reduced. Recessions are generally identified by a fall in gross domestic product (GDP) in two successive quarters.

Today, there are two leading schools of thought on how long the coronavirus-induced recession will last. There’s team the-economy-has-been-paused-and-will-restart-as-soon-as-lockdown-does and team recovery-could-take-years.

Usually, during an economic downturn, governments try to encourage consumer spending. However, with the pandemic continuing to affect life as we once knew it, the public is being told to remain alert and stay away from a large number of activities that promote spending.

While some argue the global economy has been frozen in time, others say that the psychology of the lockdown will take much longer than one year to thaw.

As Peter S. Goodman explains in a New York Times piece,

“Households may remain agitated and risk-averse, making them prone to thrift. Some social distancing measures could remain indefinitely. Consumer spending amounts to roughly two-thirds of economic activity worldwide. If anxiety endures and people are reluctant to spend, the expansion will be limited — especially as continued vigilance against the coronavirus may be required for years.”

Unsurprisingly, individuals are likely to start coming up with ways to recession-proof their money during times of uncertainty.

And according to a UN report, developed countries are on track to be $2.7 trillion in debt.

Goodman explains: “In normal times, they could afford to roll most of that debt into new loans. But the abrupt exodus of money has prompted investors to charge higher rates of interest for new loans.”

How long does a recession last for? The average recession will last for 11 months. How long will this recession last for? It’s almost impossible to say given the unique set of circumstances that coronavirus has presented to the world.


Read: Do people save more money if they work from home?

Eight ways to recession-proof your finances

Winter has come, and a recession is coming. You might not want to be confronted with the thought of an economic downturn, but there are positive ways you can recession-proof your finances and safeguard your financial future.

Here are eight ways to recession-proof your finances:

  1. Pay off your debts 
  2. Start a rainy day fund
  3. Think about the ways you can cut back
  4. Talk to your friends and family about money 
  5. Focus on the future
  6. Marie Kondo the non-essentials 
  7. Invest in yourself
  8. Look to the future but enjoy the present 

Pay off your debts

Whether you owe your friend a fiver or the bank five grand, planning out small measurable goals to pay off your debt is something you should be prioritising, especially in times of uncertainty. If you pay off your debts now, it increases your chances of getting a loan in the future if needs be. More importantly, it gives you some space to breathe in an unstable job market. 

Start a rainy day fund 

If you are still working and stable in your job, it’s a great time to recession-proof your finances by setting up a savings account and puting away a sum of money every week. If you are working from home, consider starting with the amount of money you are saving from not commuting, buying lunches out, paying for fuel, and all the other trimmings that go with it.

Think about the ways you can cut back 

Think about ways that you can cut back. In all fairness, in the last few months, there hasn’t been much to cut back on, however, there is always room for improvement. Do you have a $20 a day coffee addiction? Maybe it’s time to invest in do-it-yourself coffee products so you can keep the quality coffee but lose the big price tag.

This same logic can be applied to all expensive habits. Consider cutting back by 15%, calculate how much you would save, and put that amount in a safe place for when you need it. 

Talk to your friends and family about money 

It might feel crass to talk to your loved ones about money, but having open, honest conversations about how much you manage to save and your relationship with spending can be illuminating.

As a society, we often feel uncomfortable talking about money, and are potentially competitive about how much money we have, so we often simply don’t bring it up. You might find a savvy friend has some good tips on how to better manage your money. Or, on the flip side, you might realise you are in fact really good with money, which might motivate you to further recession-proof your finances.

Focus on the future 

A global pandemic and its accompanying recession might make you want to take every hour as it comes, and that’s fair enough, it is an unsettling time. But, focusing on the future will help keep you motivated on spending less and saving more.

It might not feel like it right now but there will be holidays to go on in the future, there will be concerts to attend, there will be parties and there will be full cinemas. There will also be mortgages and new cars and potential families to start. By focusing on what’s to come, you can help stay focused on where you currently are with your finances.

Marie Kondo the non-essentials 

Most of us have some subscriptions lying around that we never use (unlike Crikey, of course, which is always good investment). It might be the gym membership you never use, a video streaming site you never watch, or even a monthly dinner with people you don’t like. One perk of an economic downturn is you can be pickier. Use this time to audit the non-essential. Quality over quantity, always.  

Invest in yourself

Your greatest investment is yourself. Are there any skills that would help you further your career? Maybe you are where you want to be, but there are some things you could brush up on? Investing in a course not only gives you a project while we wait for life to return to normal, it also helps to refresh your CV and your mind.

If you are hoping to advance your career, move on to a new industry or show your current or future employers some initiative, now is a good time to consider developing and honing new skills. It may even lead you to the pay rise you have been looking for.

Look to the future but enjoy the present 

There’s been lots of talk of battening down the hatches, and it’s good advice if I do say so myself, but another important and trendy habit is mindfulness. Treating yourself to things, whether its a new cardigan or a car is nice, but taking stock of everything you have and being happy with your lot is a priceless skill.

If you really want the coffee, get the coffee, but think about the motivation behind your purchases — and consider the ways you can be kind to yourself without being harsh on your wallet. 

Read: Do people save more money if they work from home?

Is Australia going into a recession?

Australia is officially going into a recession. Technically, it already is in a recession — GDP data from the Australian Bureau of Statistics shows that Australian economy shrank by 0.3% in the March quarter.

And government officials and economists expect the data for the June quarter to be even worse.

A recession is defined as a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.

According to Treasurer, Josh Frydenberg, both business and consumer confidence was at its lowest during mid-March. 

However, the early stages of coronavirus is not the only contributing factor to the economic downturn. 

The bushfires have also played a role; figures from the Australian Bureau of Statistics (ABS) show Australia’s economy recorded its slowest growth in over a decade before the coronavirus lockdown was put in place. 

Is Australia going into a recession?

ABS figures confirm what a lot of us already knew was coming our way — that being the first recession in 29 years in Australia. 

May numbers reported by ABS show that: 

  • Employment decreased by 227,700, to 12,154,100 people
  • Full-time employment decreased by 89,100, to 8,540,000 people
  • Part-time employment decreased by 138,600, to 3,614,100 people
  • Unemployment increased by 85,700, to 927,600 people
  • The unemployment rate increased by 0.7 points to 7.1%
  • The underemployment rate decreased by 0.7 points to 13.1%
  • The underutilisation rate increased by less than 0.1 points to 20.2%
  • Monthly hours worked in all jobs decreased by 12.1 million hours, to 1,604.7 million hours.
ABS-employment-graph
(Image: ABS)
ABS-unemployment-graph
(Image: ABS)

Unemployment isn’t the only symptom of a recession. Commercial slowdowns, government spending and weak consumer confidence also play a part in reinforcing the recession in Australia, which has been caused by both the bushfires and the coronavirus pandemic.

Read: Will coronavirus cause a recession in Australia? | The most recent forecasts

What jobs survive a recession?

What jobs survive a recession?

There are a number of industries that are likely to remain stable and potentially even grow during a recession, based on the lessons learned during the Great Recession of 2008, according to a report from ZipRecruiter,

Australia has not experienced a recession — defined as two consecutive quarters of negative economic growth — since June 1991.

Australia officially entered into a recession in May. Unemployment now sits at 7.1%, up from 6.4% in April. Some 227,000 jobs were lost in May — 90,000 full-time positions and nearly 140,000 part-time positions.

So, what jobs survive a recession?

According to the ZipRecruiter report, the following industries and professions are likely to survive a recession:

  1. Registered nurses (+7.6%)
  2. Home health carers (+17.8%)
  3. Personal care aides (+15.2%)
  4. Medical assistants (+24%)
  5. Medical secretaries (+16.5%)
  6. Nursing attendants (+4%)
  7. Social and human service assistants (+13%)
  8. Management analysts (+7.3%)
  9. Childcare workers (+6%)
  10. Pharmacy technicians (+10.5%)
  11. Health-specialist teachers (+26.9%)
  12. Restaurant cooks (+2.5%)
  13. Paramedics (+10.2%)
  14. Coaches and scouts (+11.4%)
  15. Physical therapists (+11.4%)
  16. Police (+3%)
  17. Recreation workers (+5.1%)
  18. Cafeteria cooks (+4.1%)
  19. Pharmacists (+5.9%)
  20. Guidance counsellors (+6.3%)
  21. Logisticians (+16%)
  22. Court, municipal and licence clerks (+13%)
  23. Mental health counsellors (+15%)
  24. Physician assistants (+21.8%)
  25. Massage therapists (+30.8%)

As the coronavirus pandemic presents its own unique challenges given much of the work force are being asked to work from home, there are a number of other industries that may be seen as ‘safer’ than others.

A recent analysis of the industries that are still hiring in Australia include:

  • Healthcare workers
  • Pharmacists
  • Retail workers
  • Delivery drivers
  • Telecommunication workers
  • Administrators
  • Support staff at banks
  • Factory and warehouse workers
  • Direct to consumer product development and marketing.

Read: Work-from-home jobs: which industries are hiring?