rents during the coming recession...

Curious to get a consensus on who thinks Australia will be in recession within 12 months, thumbs up if you do.

We've got the end of QE2 approaching which could hit commodity prices (about the only thing going for Australia).

We've got near record corporate bankruptcies.

Employment recently dropped unexpectedly.

A record low number of property transactions (reducing income to government as well as real estate sector industries).

Retail spending is on the decline (Unconventional Economist did a great piece on macrobusiness.com.au the other day about correlation between consumption and house prices, indicating spending is likely to get worse).

Mortgage delinquencies are in some cases higher than in 2008 or rising sharply.

Craig James, chief economist at Commsec recently said (referring to first quarter this year): "There's not many positives out there in terms of GDP and it does look as though the economy did contract about 0.3 of a percentage point".

If that is the case and we have contraction during the current quarter then we may very well already be in recession!

I keep reading here, there and everywhere that investors will be ok in a house price decline because they will just keep raising rents. I heard the same arguments before interest rates started rising a couple of years ago, but in many areas rents they haven't increased by that much (at least not compared to interest rates which have risen 40% over 2 years -> 5% in early 2009 to 7% now).

There is no guarantee things will play out exactly the same, but take a look at what rents did during the 1990s recession (below). In my opinion any rent increases will be lower than inflation and may even fall (nominal terms) in oversupplied areas:



Interesting times ahead!