A recession, what it is and downturn market updates

Research

A recession and what it is?

A recession is characterised by at least 2 consecutive quarters of negative GDP.

Most recessions flush out the excess that was created during the boom.

Companies go bankrupt once interest rates start to increase and like Warren Buffett says: "When the tide goes down you will see who is swimming naked"

Below is the investment clock showing all the indicators and the different stages.

• Slow down
• Recession
• Recovery
• Boom

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Recession in property prices

In property market levels a recession is classified as a drop of more than 20% in property prices over a period of time (at least 2 years) where prices under perform inflation.  

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Since the 1980’s, the average correction period for all major 5 major capital cities has been 3.98 years - with a tight range of 4 to 7 years, with prices declining on average of 5.74% (up to 11%) during this period

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In some cases we also see prices soften and historically (back to 1960s) we have seen price falls in the major capital cities up to 20%. Corrections are necessary for the markets to normalise and find its new equilibrium point after rapid price appreciation.

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What happens

The most frequent tipping point for a market to turn into a correction is simply that:

• Prices are no longer affordable
• Demand decreases
• Supply increases
• Speculators and investors leave the market and prices soften or in some cases fall

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Recession in property prices

All cities down except Regional Adelaide

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Adelaide is the only city holding up since interest rates rise and has the lowest days on market figures.

This period from Dec to feb will allow buyers to buy without competition in the best performing market in AU

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Across the capitals properties are selling fastest in Adelaide.

Why?

Relative affordability of Adelaide’s property market and lifestyle trends that arose during the pandemic have seen conditions remaining comparatively stronger as rates have risen.

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Have we hit the bottom yet?

The good news is that the pace of declines has generally slowed, although this could just reflect seasonality.

The biggest losers

The Melbourne market is faring a lot better than Sydney and Brisbane, with total losses of only 6.9% to date and a more orderly (albeit still chunky) 10.6% annualised rate of decline over the last three months.

The survivors

Adelaide and Perth are stronger again, experiencing very mild adjustments of just 1.1% and 0.9%, respectively, since their recent peak.

Conclusion

The second chart below highlights the positive news. It shows the change in the pace of three-month annualised house price declines, which have slowed, though they still remain sharply negative (observe how most lines are rising or stabilising).

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