I'm new to talk about the economy etc, so go easy on me.
But a quick question:
Why is it that people are saying that Australia looks like it could be going towards a recession? How would an Australian recession affect the cost of houses in Australia?
Is it because of the following reasons?
1. Interest rates rise therfore there is an increase in pressure on people that hold a mortgauge for a house. These people are forced to cut back on leisure items. This in turn would create less people spending money in shops etc. (Therefore slowing the economy).-->Could also cause people in retail to lose their jobs due to less demand for their products?
2. Apparently it is now more difficult to obtain credit. If someone could tell me why that would be great. Is it because that with a higher interest rate you can only borrow less?--or is it because the mortgauge prime situation in the US has had an effect on non-bank lenders such as Aussie Home Loans and RAMS? etc?
3. Are people talking about recession because it seems that the US is currently in recession?--or is it if the US goes into 'hard recession' that it will spread throughout the world creating a global recession?
4. Is it because the intrinsic value of house prices appear to be inflated that is making people borrow more credit then what they would have 15 years ago such that their mortguage repayments per month taken out of their monthly income, as a percentage figure is a lot higher than previous generations? For example, if you want to buy a $400000 home and you earn only 50k per year, then over 50% of your monthly income would go automatically to the banks in order pay back your mortgauge. This percentage figure would have been less during previous generations.
5. Is it because the wages of the average Australian seems to be out of whack in comparison to what one can afford these days. I.E. on an average income we can borrow less money via loans due the interest rate rises. (which means not being able to afford houses) But also, everyday items seem to be so expensive now days. Like buying bread is $4 instead of $2 etc.
Are these the main arguments here for a recession to occur? Why else would a recession occur and is there any benefit for an economy during a recession?