Buying Property During a Recession: Pros, Cons and Tips

Buying Property During a Recession: Pros, Cons and Tips

  • December 5, 2020
  • Posted by: museswow
  • Category: Property and Finance
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buying property during recession

Economic downturns create risk — but also real opportunity for prepared buyers.

When the economy contracts, many buyers step back from the property market. Competition drops, sellers become more flexible, and interest rates often fall as the Reserve Bank of Australia (RBA) acts to support economic activity. For buyers who are financially prepared, a recession can present genuine opportunities.

But buying property during a recession is not without risk. Your income security matters more than ever, and lending conditions can tighten just when you want to borrow. Here is what you need to weigh up before making a decision.

buying property during recession

What is a recession?

A recession is defined as two consecutive quarters of negative growth in real Gross Domestic Product (GDP). During a recession, the economy contracts, unemployment rises and household spending falls. Businesses slow hiring or begin laying off workers.

Australia has experienced several notable economic downturns, including the 1990s recession and the impact of the 2008 Global Financial Crisis. Each had different effects on the property market depending on the cause, the government’s response and how quickly conditions stabilised.

Understanding what drives a particular recession matters when assessing its likely impact on property prices and lending conditions.

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Past recessions

Australia’s property market has weathered several downturns. During the 1990s recession, national dwelling values fell around 4.4% between mid-1989 and late 1990. During the 2008 Global Financial Crisis, the national market dropped approximately 7.5% before recovering quickly, supported by RBA rate cuts, government stimulus and strong demand.

A housing slowdown between 2014 and 2017 — driven by tighter investment lending policies — was followed by an owner-occupier rebound once the RBA cut rates and serviceability requirements eased.

The key lesson from Australian property history is that downturns are typically followed by recovery. The depth and duration of any fall depends heavily on how quickly policy responses take effect and how stable employment remains.

Pros of buying

There are several reasons why buying property during a recession can work in your favour:

  • Lower interest rates. The RBA typically cuts the cash rate during downturns to stimulate the economy. Lower rates mean cheaper borrowing costs and more manageable repayments.
  • Less competition. Many buyers sit on the sidelines during uncertain times, reducing competition at auctions and in private sales.
  • More motivated sellers. Vendors who need to sell in a downturn are often willing to negotiate on price, giving buyers more leverage than in a hot market.
  • Potential for capital growth. Buying when prices are lower positions you to benefit more from the eventual market recovery.

    • For buyers who are financially secure and have a long investment horizon, a recession can genuinely be the right time to act. Use our borrowing power calculator to check your position before speaking with a broker.

    Cons and risks

    Buying during a recession also carries real risks that you need to think through honestly:

  • Job insecurity. If your employment is at risk, taking on a long-term mortgage during a downturn adds significant financial stress. Be honest about how stable your role is before committing.
  • Tighter lending conditions. Lenders often tighten their credit policies during recessions, making approval harder for those with variable incomes, self-employment or less equity.
  • Prices may fall further. Buying too early in a downturn can mean your property loses value before the market stabilises. There is no guaranteed way to time the bottom.

    • If your income is solid, your deposit is in place and you are buying for the long term, the risks are more manageable. But if you have any doubts about your job security or cash flow, it may be worth waiting until conditions are clearer.

    Practical tips

    If you decide to move ahead with buying property during a recession, these steps will help you do it wisely:

  • Get pre-approved first. A pre-approval tells you exactly how much you can borrow and signals to vendors that you are a serious, finance-ready buyer.
  • Research the local market. Know the price range in your target suburb so you can recognise genuine value and avoid overpaying.
  • Set a firm budget at auction. Competitive pressure can disappear in a downturn, but it can also spike unpredictably. Decide your maximum bid in advance and do not exceed it.
  • Check the property title. In distressed markets, some properties are sold by lenders following default. Confirm the title is held by the vendor, not a bank.
  • Look for motivated sellers. Properties that have been listed for a long time are often priced to sell. These sellers are typically more open to negotiation.

    • A mortgage broker can help you identify which lenders are actively lending in a downturn and what their criteria look like. Read our guide to home loan readiness assessment to make sure your finances are in order before you start searching.

    Common questions

    Q: Do property prices always fall in a recession?

    Not always, and not by the same amount. In Australia’s 1990s recession, property values fell around 4%. During the 2008 GFC, falls were similar before a fast recovery. The depth of any decline depends on the cause of the recession, government policy responses and the health of the lending market. Some areas and property types hold up better than others.

    Q: Is it harder to get a home loan approved during a recession?

    It can be. Lenders tend to tighten their credit policies during economic downturns, particularly for borrowers with variable income, irregular employment history or limited equity. Getting your finances in the best possible shape before applying, and working with a broker who knows which lenders are most open to lending, gives you the best chance of approval.

    Q: Should I wait for the recession to end before buying property?

    That depends on your personal financial situation. If your income is stable, your deposit is ready and you are buying for the long term, waiting for the all-clear may mean paying higher prices in a recovering market. The best time to buy is when you are personally prepared, not when the economic headlines look perfect.

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