Australia's 80 per cent recession risk Research from the Reserve Bank estimates that Australia's risk of recession over this year and next could be as high as 80 per cent. But policymakers try to be more precise than that, so they use a specific definition of "recession" to say for sure if one has begun.
Australia is moving closer towards a recession and its chances of experiencing one in the next year is sitting at around 50 per cent, according to economists.
If Australia enters a recession, many people will have a tough time, whether through job loss, home loss, or even just a struggle to pay the bills. Whole markets will tank or lose significant value and many businesses will likely go bankrupt.
Australia may continue to be the lucky country and avoid a recession in 2023, but its global peers may not be so fortunate. Chief economist at Australian Retirement Trust Brian Parker says that Australia is relatively well placed to handle the economic turmoil.
Although Australia has avoided the worst effects of a recession for almost 30 years, 2023 may be the year of a recession - if one thing keeps rising. With GDP on an upward trajectory, a 0.6 per cent uptick to be precise, and unemployment at an all-time low at 3.5 per cent - we're in a good economic situation.
Geopolitical tensions, energy market imbalances, persistently high inflation and rising interest rates have many investors and economists concerned that a U.S. recession is inevitable in 2023. The risk of a recession rose as the Federal Reserve raised interest rates in its ongoing battle against inflation.
Prices could fall further
If you buy in a recession, there is always the risk that prices could fall even further. That said, Australian property prices usually tend to rise in the long run, especially in capital cities. So if you're prepared to spend some time owning your property, you're likely to come out ahead.
In general, a recession lasts anywhere from six to 18 months. For example, the Great Recession that started in December 2007 lasted 18 months. But the recession prompted by the pandemic in 2020 only lasted two months.
Generally, the industries known to fare better during recessions are those that supply the population with essentials we cannot live without that. They include utilities, health care, consumer staples, and, in some pundits' opinions, maybe even technology.
How Often Do Recessions Happen? Again, since 1857, a recession has occurred, on average, about every three-and-a-quarter years.
Recessions have plenty of negative consequences, but they can provide a necessary reset for the markets. Higher interest rates that often coincide with the early stages of a recession provide an advantage to savers, while lower interest rates moving out of a recession can benefit homebuyers.
High house prices in Australia are primarily driven by supply and demand imbalances, tax policies, low-interest rates, and rising household debt.
Australia's housing prices have experienced the largest decline in a calendar year since the global financial crisis (GFC) in 2008, when home values fell 6.4 per cent nationally.
Nationwide prices are expected to rise by approximately 2 per cent by the end of 2023. However, as the RBA potentially cuts interest rates before the end of 2023, demand pressures will contribute to a favourable environment for property prices.
Preparing for a recession comes down to using strong economic times to your benefit. Focus on limiting your spending, forming a budget, building an emergency fund and eliminating high-interest debts.
The bottom line
Signs point to a recession in 2023, not just in the U.S. but globally, though many experts remain hopeful it will not be too severe. This is good news for everyone, as it could mean fewer people lose their jobs, and household financial impacts will be mild.
Australian property values experienced a downturn in 2022 and prices continue to fall—but predictions of the overall peak-to-trough price decline tend to vary between 15-25%. Read more about whether the Australian property market is going to crash.
The 1890s collapse
The 1890s witnessed Australia's worst ever house price decline.
The OECD's stark warning of a “rout” in house prices that ripples across the entire economy has raised the spectre of the crash of 1987.
Australia's property market is considered to be among the most expensive in the world, with Sydney and Melbourne regularly featuring among the list of least affordable housing markets, along with some US and Canadian cities. One measure of affordability is the household debt-to-income ratio.
So when the average house price in Australia is compared with the United States, the numbers demonstrate a huge divide. It turns out that the cost of the average house price in the US is less than 1500 euros ($AU 2541) per square metre, but down under it's more than 5000 euros ($AU 8470) per square metre.
The number of suburbs where it's cheaper to buy than rent has been slashed in the past year, due to a record number of rate hikes that have outpaced skyrocketing rents.
Stock prices nosedive during recessions . Millionaires and billionaires purchase them for pennies on the dollar. Then, once stock prices recover, the value of their holdings skyrocket, causing them to get significantly richer.