Usually, whenever a recession hits, real estate prices are expected to fall. However, in March 1992, the opposite had happened. In Melbourne, the house prices declined by more than 6 percent. But Queensland house prices went up, it was the era of Melburnians fleeing a boring city for the sunnier climates of the Gold Coast, because of the economic shove that the recession had made.
The question stands, why do real estate prices fall during recessions. This can be easily answered by bringing in several economic concepts. The first one is supply and demand. When a recession hits, consumers are more inclined to save their money, this drops the demand but also boosts the supply since most people have a mortgage for their home, if it drops below a certain value the bank might ask for the loaned money back, in this case the individual needs to strategically allocate their resources so that they don’t go into negative balance, so they sell their house. Essentially the market becomes overcrowded with properties because people become desperate trying to sell them. I would consider a recession to be a “shove” for the consumers decisions. A recession usually involves many people losing their jobs this results in individuals spending less money, therefore many would go against buying properties at this time since it holds so much risks. However, many people like to take this risk in order to maybe earn some money in the long run.
But, what happened in 1992? Why did the real estate prices in Queensland rise? In truth, its once again supply and demand. There wasn’t any demand for the homes in Queensland, and the recession had already made them even cheaper. People in Melbourne decided to take advantage of the situation and move states to avoid a financial burden in Melbourne and move to the sunny coasts of Gold Coast. In this case the opportunity cost is a home in Melbourne.
To conclude, prices can fall or rise during a recession. There is no specific formula that can be followed to predict what will happen.
Year 11 MHS Economics 2020 