Australian Housing: Sector downturn triggers recession fears

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Australia's housing boom appears to be over. The sector that has helped the Aussie economy continue growing - is in the midst of a downturn. And some economists believe that makes Australia much more prone to something it hasn't experienced in almost two decades - a recession. Greg Navarro explains.

Spend some time with a Sydney home buyers' agent. And you'll get a sense of optimism about the city's housing market.

RICH HARVEY, CEO AND FOUNDER PROPERTYBUYER.COM.AU "What we have right now is that some buyers can actually jump right in and take advantage of a softening market."

Softening, because house prices in Sydney have dropped by around 5% in the past year. Nationally, home prices have dipped around 2% after a period of sustained growth. That's why some economists have a less optimistic view.

PAUL DALES, CHIEF ECONOMIST CAPITAL ECONOMICS "We'd suggest that there is perhaps a 30% chance that in the next 5 years, there is a recession because of this - that's not a huge percentage but it is something that I think investors need to worry about because the consequences of that could be quite grave."

Australia's mining boom helped insulate the nation's economy from global pressures including the Global Financial Crisis. When it came to an end, regulators stimulated the housing market by lowering interest rates. That created a housing boom which kept the economy growing.

RICH HARVEY, CEO AND FOUNDER PROPERTYBUYER.COM.AU "In some suburbs Sydney housing prices have jump 90 to 100% since 2012."

Much of that increase was fuelled by investors taking advantage of low interest rates. But that also increased household debt, and prompted regulators to tighten lending and investment policies.

PAUL DALES, CHIEF ECONOMIST CAPITAL ECONOMICS "You can't have a market continue forever just by investors selling housing from one person to the next, and secondly and I think this is what policy makers have been more concerned about, investor activity tends to be more risky. So investors tend to take out larger loans and that puts the banks in a more perilous position."

Some economists believe all of this threatens the country's run of almost 27 years of continuous economic growth.

GREG NAVARRO SYDNEY "In fact Australia has not had a recession - defined as 2 consecutive quarters of negative growth - since the 1990's."

RICH HARVEY, CEO AND FOUNDER PROPERTYBUYER.COM.AU "For me to be really concerned about the property market, I'd need to see unemployment get over 7%. I'd need to see inflation rising higher than 3%. And I'd need to see Australia in recession for an extended period of time."

But if Australia's house prices continue to drop as some economics expect - they say it will raise 2 questions worth watching closely - how far will they fall and what will the fallout be for the country's economy. Greg Navarro, CGTN, Sydney.