How Long Do Property Markets Take To Recover After a Recession?
Given the turbulent times right now I thought it would be good to look back over the past 30-40 years of Australian property data and see how long property markets take to recover after they have gone through a decline. The results are actually shocking and far better than I expected
Core Logic’s February 2020 Update: https://www.youtube.com/watch?v=8bQ46xpybJs
these are obviously turbulent times that we’re living through at the moment with about a quarter of the world in lockdown at the moment and it’s very unclear to see okay what may happen to the property market in this time and there’s a lot of people who are fearful there’s a lot of people going through hardships in terms of losing their jobs or dropping hours etc but also during these times it can actually be a great opportunity to invest in property if you are in a good stable financial position and you’re willing to stomach the risk that comes with that so in this episode i wanted to look at okay how long do properties actually take to go down when recessions here or when property markets go down and how long do they take to recover to give some of you out there security if you own a property what may you go through or if you’re looking to invest what are the opportunities that may exist out there hi i’m ryan from onproperty helping you achieve financial freedom and this graph came out by corelogic in their march monthly update which i’ll link up down below the march update actually only uses february data so looking at that to try and predict what’s going to happen is is not very useful because everything’s kind of happened here in australia in march but this graph here the historic periods of decline to recovery i thought was extremely interesting now australia hasn’t gone through a recession since back in the early 1990s it does look like we’re going to go through a recession given all of the social distancing and everything that’s happening and businesses closing or going into hibernation but then there’s also the massive stimulus that the government is putting back into the economy and how will that actually affect things once we move out of these lockdown measures and things that are happening generally speaking when the government does quantitative easing when they do all this stimulus stuff that tends to inflate asset prices so there’s potentially an opportunity through this and on the other side of this but i thought it’d be interesting to look at these historic periods of decline nationally now this is not looking at cities individually because obviously australia is made up of many different markets you’ve got sydney and melbourne the two primary markets who went through one of the biggest declines i think in 30 years oh yeah and we look at this map this goes back to 1982 so we can see that this was the biggest decline in about 40 years basically
so you’ve had sydney and melbourne go through those but then you’ve got other markets like brisbane which has stayed pretty stable and only kind of went down a bit then before then over the last five years or so perth and darwin have had declines people saying that perth may have reached its bottom tasmania still recovered and still was growing during this time so every market in australia is different but here we’re looking at nationally these periods of decline to recovery and so what i think is really interesting is that this timescale in months we see the longest decline from peak until recovery of those peak prices was 39 months or just over three years but most of them fall within a 30 month window or two and a half year window and a lot of them actually fall within a two year window now remember as well that this is assuming that you actually bought the properties at the worst time in history so you’re buying sydney at the peak of 2017 right before prices start to fall so you didn’t buy before ran out but you didn’t buy it on its way down this is assuming that you bought at the absolute worst time to buy which is the peak of the market before it declines and as you can see here we’ve got a bunch of different rates of decline and how deep they decline the most recent decline was down 8.4% the biggest one prior to that was 1982 which was during the recession in the early 80s that declined 8% and then went back up within the space of two years we’ve also got the 1990 recession as well which occurs here in red which is one of the more drawn out ones where we saw prices decline about four maybe 5% and then recovered over the space of about two and a half years there during that recession as well we saw growth in prices and then a decline again so we may repeat that here with obviously sydney and melbourne have gone back up i think melbourne was even above what it was back at this peak and now that we’re going through the crisis we’re going through right now we may see that start to go back down before it goes up again but something really interesting to look at here is A lot of these don’t last very long. And also what not a lot of people seeing this graph is the opportunities that exists for buying at the bottom of the market. So with a shorter ones, you only have, you know, six months until you reach the bottom seven months to reach the bottom. Even in this early 90s recession, there was about a year till it reached the bottom. But even if you bought just four months, there wasn’t actually much decline between when that started to go down. And when it reached the bottom there, and for a lot of these opportunities, you can see that, you know, the 80s recession that happened within nine months, in 2008, when we had the global financial crisis that was bottomed out in about nine or 10 months, before it started to grow, it’s very hard to ever pick the exact bottom of one of these times and to say, Okay, now reached the bottom, this is it. But as the prices tend to go down, obviously, you never want to buy on the way down, but you can never actually pick a bottom and know exactly when the bottom is going to hit. I had no idea that Sydney and Melbourne would do so well, towards the back end of last year could not have picked that. But you have to look at the risks as you are on your way down. And property prices, obviously not as volatile here as the share market. In 2008. We saw share market prices crash I think in the us up to about 50 or 60%. And often through these recessions you see share prices drop something like 40% 35% 31%, these sorts of numbers, whereas in property here, nationally, we’re seeing maximum drops of around eight to 8.5%, which is really different. But what you want to look at is on the way down, if you are in a secure financial position in a stable financial position, if you’re investing in the right property market in Australia, that isn’t at its peak, at the moment, something like Brisbane that’s gone through a lull over the last decade, basically, that hasn’t actually peaks dramatically, like Sydney and Melbourne have. So therefore has less risk. As we’re going down as this graph is going down. You look at Okay, where is the opportunity here. And obviously, as you fall down the graph, you’d like to buy the very bottom, but we can never really pick that. So if we bought here at minus 4%. And we saw another 4% drop, how long did that take five months, and we go across maybe 15 months, maybe 10 months of decline before we saw that recovery. And so if you’re investing in property, for the long term, we’re talking 10 years, 15 years, you’re investing for cash flow, you’re investing for financial freedom, you’re investing for long term growth, in the short term of maybe six months, or 12 months or even 18 months, this may look like treacherous time and may look, you know, unstable and you don’t know what’s going to happen. But then you look at the opportunity as as this goes down for how long it takes you to recover your money, and then the opportunity as it shoots back up again. So the market at the moment, no one really knows what’s going to happen. But as this begins to play out, as this begins to unfold, there’s going to be huge opportunities in the market for people who are still in good financial positions, still have good stable jobs or stable businesses, because even though some people losing their work, not everyone’s going to be losing their work. And there’s going to be opportunities in the market, like we haven’t seen in 10 years. Also, on the way down, this is just nationally, if you invest correctly in the right city, in the right suburb, you buy the right property for that area with a potential to buy under market value and manufacture growth, you might be buying at this point, the minus 4%. But then you might actually be getting a discount on that property. So you’re buying somewhere around here. So then your recovery time is even shorter. Or maybe you block it out and you buy right at the bottom, but still get a discount on it, you’re actually starting down here and so your growth trajectory is much higher. So there’s gonna be a lot of opportunity out there for the right people in the right markets. Now’s the time to do your research, to do your due diligence. Don’t just go out there and buy anything but get a long term strategy that you need to achieve your property goals. Maybe that might be cash flow and financial freedom, whatever it may be get clear on that long term strategy and how buying a property in this market where you can get discounts on properties fits into that long term strategy, not where it fits into just the next two months or six months. But how can that actually set you up for the future because we’ve been through recessions in the past. We’ve been through pandemics in the past. We’ve been through so many different things in the past in you know 2001 with the.com crash and 911 we’ve also had the global financial crisis we’ve now got what’s happening right now economies have been through things economies recover from this as well so this won’t go on forever and for the right people there’s some good opportunities out there so this has been insightful to show you the historic periods of decline to recovery and how long it actually takes property markets to recover as you can see going from peak to peak we talked about you know that three year window even down to two and a half year window but looking at the bottom and buying at the bottom of the market how long does it take to actually go back up and you can see a lot of these cases it’s somewhere like six months 10 months less than a year so here in 2008 going from maybe 10 months in recovered within 18 months so that’s an eight month window of massive growth in that market in the 1982 recession that’s kind of happening around the 11th month recovering before the 21st months so within nine or 10 months recovering there with this one and how it’s going right now who knows how it’s going to play out but we’ll have to see but as you can see as you get towards the bottom here then the recovery can be quite steep and then you could miss out so the market is not for everyone right now you need to do your due diligence you need to be really smart but if you can stomach the risk if you have a good short term strategy in terms of what you’re buying in terms of maximizing cash flow not putting yourself in a bad position if you have a long term strategy of how you’re this can this property can actually help you achieve your financial goals then now can be a good time for some people if you want to get on the phone to someone else to talk about where you’re at the current market situation what could happen and what strategies work in this current market then head over to onproperty.com.au and you can learn more about our free strategy sessions over there and book in a time that suits you to get clear on how you can move through this and come out stronger in this remember during recessions there are some amazing opportunities and some of the biggest companies in the world have been born born out of recessions think of ford motor company general electric disney microsoft ibm cnn so many companies and so many opportunities come out of recessions and hard times like this if you can find those problems solve those problems and invest correctly so again go to onproperty com.au to learn more about those free strategy sessions i wish you the absolute best through this time i wish you the best to help as well and until next time stay positive