Property prices don’t crash in a recession: analysis

If history tells us one thing, property prices are unlikely to crash just because the economy enters troubling times.

Those expecting property prices to crash if the economy goes into recession may be disappointed, with historical trends pointing to only moderate falls before a significant upswing.

Since 1990, there have been only six periods where the year ended with negative house price growth. And even at the height of the 1993 recession and the Global Financial Crisis, property prices fell no more than 10 per cent before significantly rallying as the conditions recovered, according to new analysis from PropTrack for The Weekend Australian.

After a dozen rate rises since early 2022, economists say the likelihood of another rate rise in July has increased, with many also expecting a further move in August. The swift tightening has made the chance of the Reserve Bank navigating a “soft landing” increasingly unlikely, with forecasters predicting the economy will be thrust into recession in the next 12 months.

AMP Capital chief economist Shane Oliver said there was not much evidence of a property crash just because you have an economic downturn or recession.

“It is quite normal to see prices come down,“ Dr Oliver said.

“There’s not much evidence of a crash unless you go back to the 1930s. That was, I guess, an extraordinary downturn and combination of events. But in the post-war period, there’s no evidence of a crash in property prices just because you have an economic downturn or recession.”

Current conditions are also unlike any recent downturn, with low unemployment levels, surging migration and an acute shortage of homes placing a floor under the property market.

Buyers are still actively looking for homes despite rising rates and the increasing serviceability floor, making it increasingly difficult to access credit. Ray White data indicates the number of people attending open homes has surged 27.85 per cent in the past month compared to the year prior. The agency’s chief economist, Nerida Conisbee, said the unusually high level of homes selling at auction was an indicator of confidence, with 4.7 bidders registering on average.

“People are back in the market and they’re keen to keen to buy,” Ms Conisbee said.

Dr Oliver said rising prices may be drawing in people who had been waiting to pick up a ­bargain after the extraordinary pandemic boom.

“It could be that the people who are in there at the moment are relying on the bank of mum and dad or already had significant built-up savings and just went to the sidelines a year ago when prices started to fall, hoping to get a better deal later,” he said.

“That group of buyers could become exhausted.”

Distressed listings are drifting higher as the more than 880,000 home loans fixed through the pandemic at ultra-low interest rates begin to expire and revert to much higher variable rates.

PropTrack director of economic research Cameron Kusher said past trends were no guarantee of what was to come, noting every recession was different.

“If there is a recession, it’s because of policy that has brought it on rather than unforeseen circumstances abroad,” he said.

“I think the likelihood of a meaningful crash in property prices is pretty low at the moment, given that the labour market is still very strong now.”

Mr Kusher added that prices often boom significantly in the period following, as the central bank historically lowers interest rates to reinvigorate the economy and federal and state governments offer attractive stimulus.