Will a Share Market Crash Cause a Property Price Collapse in Australia?
Share markets around the world have rattled investors over the past week but could a major crash wreak havoc upon the Australia property market? The answer, according to experts, is likely no.
The Impact of Recessions and Stock Market Crashes on Property Prices
Australia has weathered past recessions and stock market crashes remarkably well, with property prices remaining relatively resilient. During the 1990-91 recession, property prices in Melbourne fell by 6 per cent, but overall, the country’s property market proved remarkably resilient, given the severity of the recession.
The Global Financial Crisis of 2008-09, while a harrowing experience for many, had a minimal impact on property prices. Despite the crisis causing tremors around the world, and shares dropping more than 10 per cent, property prices barely registered a blip before resuming their upward trajectory.
Factors Contributing to Property Market Resilience
Several factors have contributed to Australia’s property market resilience in the face of economic downturns. The Australian banking system’s robust health, particularly its lack of exposure to the “toxic” securities that severely affected other global banks, played a crucial role. This robust system facilitated effective monetary and fiscal responses, allowing the easing of monetary policy to be passed through to interest rates on loans to households and businesses.
Furthermore, Australia’s relatively quick decline in interest rates during the 1990s helped to underpin the resilience of property prices during those economically challenging times.
The Current Economic Climate
Firstly, the current low rate of loan delinquencies means few sellers would be forced to offload property, which could potentially lower prices.
Secondly, the housing supply and demand imbalance, which has driven prices to record levels, is not being addressed. Population growth remains high, and interest rates have stabilised. These factors all point to continued strong demand for property, even in the face of a stock market crash.
The Role of Interest Rates
Low interest rates and loose lending policies have historically been a significant driver of property price growth. However, in recent years, lenders have become more stringent, and APRA has implemented policy changes to address concerns about the financial services industry. This has helped to stabilise the market and prevent excessive price increases.
The Future of the Australian Property Market
While the recent volatility in stock markets has raised concerns about the property market, it’s important to remember that Australia has a long history of weathering economic storms. The current economic climate, coupled with the resilience of the Australian property market, suggests that a property market crash is unlikely. However, it’s important to stay informed about market trends and consult with financial professionals before making any significant investment decisions.
Investing in Property: A Safe Haven in Uncertain Times?
Despite the recent volatility in the global economy and the potential for a stock market crash, many investors see Australian property as a safe haven. As seen during the COVID-19 pandemic, property prices remained relatively stable despite the global supply chain disruptions and economic uncertainty. This resilience is often attributed to Australia’s strong economy, stable political climate, and high population growth.
While the future is never certain, the historical resilience of the Australian property market suggests that it could continue to be a viable investment option for those seeking a relatively safe haven in uncertain times. Of course, investing in property, like any investment, involves risks. It's essential to conduct thorough research, consult with financial professionals, and understand the risks before making any investment decisions.
