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The Recession We Need to Have

Date: 07/08/2018

Australian Property Market Update 
7th August, 2018 

Housing Supply and Demand

Over the past month, the nationwide auction clearance rate has continued to hover around the low-to-mid-50s. These are the lowest consistent results recorded since 2012. The total number of auctions held across the country over the past month has also remained quite low, with auction volume in the 1200 to 1500 range.

Looking at last week’s preliminary data, which posted yesterday, results are still on par with the July range, however, both demand and supply seem to have declined from the previous week. Typically, when auction volume is lower, the clearance rate should rise if demand remains the same. But the falling clearance rate on declining volume highlights a further weakening of demand.

Melbourne continues to outperform Sydney, but by a much narrower margin than previous weeks. Adelaide appears to be the strongest auction market, with a success rate of 73.2 percent across 56 auctions.

Here are all the latest preliminary auction numbers, as reported by CoreLogic:

Source: CoreLogic

Recent Changes in Home Prices

The annual decline in house prices around Sydney is now over 5 percent. In Melbourne, house prices have only fallen 1.4 percent in the past year, but the vast majority of that decline has come in the past month alone. That could mean that the price falls in the Victorian capital have only just begun.  

In Brisbane, Darwin and Canberra, prices rose in the month of July. Hobart was flat.

Here is all of CoreLogic’s latest median house price data:

 Source: CoreLogic 

Where to From Here?

“The Only Way Is Up”

If you ask former Domain senior economist Andrew Wilson, “the only way is up.”

Spring is certainly a season for optimism, but with all the new sellers coming to market, we’ll need to see a significant boost in demand to more than absorb the new supply and lift auction clearance rates. 

“The Only Way… Is Down”

Louis Christopher over at SQM Research has a different take. He claims, “The only way clearance rates can go from here is down,” and expects a seller success rate nearer to the low 40 percent range.

Or if you’re looking for something a little gloomier… A recent post over at is referring to some mysterious “experts” forecasting clearance rates to plummet into the mid-30 percent range. That doomsday scenario would take us all the way back in time to 1989 when auction clearance rates hit 35 percent, interest rates rose to 18 percent and dwelling prices fell off a cliff.

The Interest Rate Outlook

Speaking of interest rates, the RBA decided today to leave the cash rate on hold yet again for a record 24 consecutive months. That’s right; it’s been two years since the RBA adjusted interest rates from our record lows, and nearly that long since Philip Lowe took over as Governor. What a cushy job. Sign me up!

If you’re wondering where interest rates may go from here, take note that the RBA has never in the history of its existence raised interest rates when house prices were falling. Besides, the Fed across the Pacific made it nearly 10 years without a rate rise from near 0 percent. Add to that our wage growth struggling to keep pace with inflation, an Aussie dollar at the mercy of the Fed and a heap of unknowns around Trump’s trade wars, the only way for the RBA’s cash rate to go is down.

Of course, Philip Lowe will need to repent for declaring “the next move will be up.” But I expect he’d rather eat crow than allow us to have the recession we need to have.

The Recession We Need to Have

Every economy since the beginning of time has had its ebbs and flows – times of expansion followed by times of contraction. It’s the contractionary times – also known as recessions – when the economy has an opportunity to catch its breath and reset.

Those who got a little too greedy and took on too much debt pay the price for their folly and learn the hard way that “the borrower is the slave to the lender.” The absurdity of malinvestment (badly allocated business investments due to artificially low interest rates and unsustainable increases in the money supply) is revealed and the boom turns to bust as the greater fools get caught swimming naked (holding highly leveraged, inflated assets).

It’s my belief that before we can have healthy sustainable economic growth in Australia again, we need this malinvestment to unwind. But somehow, we have come to believe that Australia – the Lucky Country – is immune to economic recessions. 

Who can blame us? It’s been 27 years since “the recession we had to have.”

We also have regulators who think it’s their job to prevent recessions at all cost and stimulate (think Viagra) us into a perpetual state of economic growth. 

But if history is our guide, “the recession we need to have” is just around the corner. If however Philip Lowe cuts rates and kicks the can a little further down the road, then our recession will be just around the corner after that.

Either way, a recession is coming, and it’s nothing to fear. It’s a necessary (although painful for some) step toward the next season of growth. It’s the winter before the Spring and Summer.

Just be sure to rug up.

What do you think? Is a long-overdue recession just around the corner?

Profile photo of Jason Staggers

By Jason Staggers

Jason was a personal mentor working with Steve McKnight's Property Apprentices. He helped hundreds of investors apply Steve's teachings in the real world and achieve greater results on their journey to financial freedom. Jason now lives in Perth, WA where he leads Neuma Church.


  1. Profile photo of Schnake

    It’s a harsh reality, but a recession may make many stop, think and reset. Some key considerations about what is keeping our economy going; 1. Population growth from overseas migration. 2. Government spending.

    1. The preliminary estimate of net overseas migration (NOM) for the year ended 31 December 2017 (240,400 people) was 1.4% ([email protected]/mf/3101.0)
    2. Government Spending is ~3.3% higher than pre the GFC (

    Factor the above into Australia’s GDP growth rate and you quickly realise we’re part of one big Ponzi scheme.

    Oh and why does our Government want to see property prices rise? Easy, increased revenue. Not only do your council rates rise and everything else linked to your house price, but you feel rich. So you go buy a new car. July car sales slumped, coincidence that property prices are also down? I think not.

    • Profile photo of Jason Staggers

      Great insights. I agree 100%.

      We just tipped 25 million population last week, which before our mass immigration campaign wasn’t supposed to happen until somewhere around 2040. The sustainability of our immigration policy is dependent upon people wanting to move here, which will depend on whether there is a better life (jobs) available.

      Regarding government spending, the unsustainability needs no explanation.

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