Would A Feared Global Financial Crisis Crash The Australian Property Market?

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Perth Skyline
Perth Skyline Mark | Wikimedia Commons

Amidst the continuing U.S.-China trade war, economists have been sounding off an alarm that the aggressive policy embraced by President Donald Trump could eventually hurt the American economy. And the repercussions would likely spill over to major economies around the world, which certainly will include Australia.

In recent days, the likelihood of a recession hitting the United States became a looming reality as the U.S. stock market suffered significant losses. Unsurprisingly, other markets followed suit, and according to Yahoo Finance, Australia immediately felt the impending crunch. As of Thursday last week, the local bourse saw a staggering value wipeout of $60 billion.

Now it’s no longer impossible that America’s quarrel with China could trigger a recession on the former and when that happens, it’s not remote that the Australian economy could suffer the same fate. If recession indeed plays out as feared, economists wonder what sector would be the hardest hit.

One of the usual suspects would be the property market, which is still smarting from a downturn. However, the same Yahoo report said the housing market in Australia is unlikely to be pulled down by a GFC-like scenario. As far as the fundamentals of the local real estate are concerned, the status is generally healthy.

“The property market looks well supported as the elements that would lead to a falling-out of the market aren’t there ... House values aren’t destined to fall even if our economic growth does,” the report stated.

Outside of the direct effects that the GFC could bring to Australian shores, economists worry more on two indicators that could spell doom for Australian properties. One is the possibility of job losses due to the recession. Obviously, an out of work Aussie would struggle to meet mortgage payment obligations that in the long-run would hurt the housing sector.

Another concern is consumer spending, the shortage of which is deemed to only sustain the national economy’s already poor showing. Thankfully though, intervention measures from the governments – the implementation of lower interest rates and spending incentives – are in place to keep the economy going.

Experts are convinced that the Australian property market is in a much better standing compared to other sectors of the economy that in an event of a recession, the worst that could happen is a slowdown. But there will be no crash.

According to Michael Yardney, Yahoo’s property market expert, as things stand now, the sector is in good shape to withstand a hit, even in the level of a recession.

“Our housing markets are in the best position they have been in a long time to withstand an economic hit,” Yardney said, adding as far as the real estate values are concerned, slumps tend to be temporary. But when it comes to appreciation of value, such a trend is always permanent, and over the long-term.