How Similar Is The Current Property Market To The GFC

The Global Financial Crisis from the late last decade was because there was no capital, so debt and equity were both severely restricted and appropriately priced. In fact, lenders like banks wanted all of their outstanding debt paid back. On the other hand, there are no issues with equity or debt with the current real estate crisis, as it is more about income sustainability.

The 2020 coronavirus

Before the coronavirus hit earlier this year, the combined property values in capital cities were recovering and the property market as a whole was also on the rise. Ever since the beginning of the COVID-19 pandemic, the decline in house prices isn't even close to being as drastic as other major market crashes in history.

With various social distancing laws still in place throughout Australia, the number of property transactions has fallen dramatically, causing more homes to simply sit there on the market.

Despite the overall elasticity of the property market, we could still see the average price of homes fall thanks to the combination of a decreased labor force, the potential negative growth of the GDP, and payment uncertainty when it comes to property buyers.

While the Federal Government has been pouring billions of dollars into our economy, unfortunately, there's not much else left in the tank this time to power the real estate industry and the economy out of this ditch any quicker. That means homeowners and property investors alike won't know for many months to come whether the current trajectory can be changed, or if it'll continue once the stimulus measures have all been depleted.

The 2008 Global Financial Crisis

Before the Global Financial Crisis hit in 2008, interest rates rose steadily from mid-2007 to early 2009 thanks to the implementation of Labor's stimulus packages. While property values fell during that time, the GFC as a whole wasn't felt as bad in Australia as it was elsewhere, including in America.

One of the main benefits we had back then was the availability of fiscal stimulus, which injected cash into our markets through customer spending, the first home buyers grants, and the Home Insulation Program which combined to help rates come down relatively fast. Our economy was actually in a relatively good position before the crisis hit, thanks to the low Aussie dollar and a resources boom on top of the fiscal stimulus which also helped us escape the worst of it relatively unscathed.

The 1987 stock market crash

Housing prices in Australia fell over a 24-month period in the early 1990s, which took around four to five years to recover from. But just like with the GFC, the economic conditions here during the lead up to the early 90's crash were again quite different from the current COVID crisis.

In fact, the catalyst for the 90's crash was a combination of the stock market crash of 1987 and the events of Black Monday, taking a few years for our economy to weaken and become a recession. Thankfully, the cash rate fell between the late 80s and the early 90's recession, which ultimately helped stabilize the market and trigger economic growth overall.

While the prices of luxury homes have fallen amidst state lockdowns, salary cuts, and fear of the unknown, most property values have remained fairly stable. This means that the current market is perfectly suited for any homebuyers looking to invest in high-end properties in a much lower price bracket than normal.

Looking to the future

2020 has been a wild ride, whilst the property market has experienced a short-term downfall in prices it is expected that this will only be temporary. That said, we have not seen the full ramifications of COVID-19 and how this will impact the property segment — especially in relation to new stimulus checks, business foreclosures and the impact of international university students will have on the economy. One thing remains certain, 2021 is definitely going to be an interesting year, and it appears that the property industry could be in a pivoting stage for years to come.