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What does it mean for you if we’re no longer in a recession?

Frustrated couple checking bills at home using laptop

The recession is apparently over – our in-house experts explain what this actually means for your money, and what impact it has on your savings, loans and investments.

The Reserve Bank of Australia (RBA) made many headlines at the end of October, when it suggested that Australia's first recession in almost 30 years may be over before it's fully begun.

"[Our] broad economic policy and Australia's progress on the health front have meant that the Australian economy is in a better shape than many others," said RBA governor Philip Lowe.

"While Australians have experienced a severe recession, it has not been as bad as was earlier expected or experienced in many other countries."

The question of whether the recession is truly "over" or not sparked plenty of debate. But perhaps the more interesting question to ask right now is: What does being in a recession (or not) mean for the average consumer?

And how does the end of a (potentially very brief) recession impact everyday Australians?

In a number of ways, the pandemic has made the prospect of owning a home far more achievable and affordable for ordinary Aussies. Since the beginning of the year, banks and lenders have slashed mortgage interest rates almost in half – and according to Great Southern Bank's new Home Sentiment Survey, around 20% of Australians are now in a better position to buy a house, owing to the economic fallout of COVID-19.

"The survey reveals a fifth of Australians think they are now in a better position to buy or invest in a property than pre-pandemic, especially those aged between 25 and 34," said Megan Keleher, Great Southern Bank's chief customer officer.

"This has led to… 46% of Aussies thinking about buying a property in the next 12 months. The government initiatives in place are clearly helping many people overcome some of the roadblocks to achieving the dream [of home ownership], so it was very pleasing to see the recent extension of the First Home Loan Deposit scheme to help an additional 10,000 first home buyers secure newly constructed homes."

It's important to note that when the economy is in recession, generally this means that banks are less likely to extend credit; are more likely to toughen up their eligibility criteria; and in general, the flow of credit stalls. Unfortunately, this happens at a time when people may need it most.

So, while it's true that existing mortgage holders are benefiting from interest rates that are the lowest they've ever been, it comes at a time when actually qualifying for a loan could be more difficult.

To address these concerns, in September, the federal treasurer Josh Frydenberg announced plans to make it easier for people to get credit cards, home loans and personal loans.

The government wants to keep credit flowing to Australian households and businesses, in an effort to recover from COVID-19, so they are encouraging lenders to approve more loans, by removing the responsible lending obligation and making it easier to get a loan.

This is just one of a number of areas where the recession has hurt or helped our hip pockets. Here, our team of Finder experts explore some of these impacts.Picture not described

The recession's impact on real estate

Richard Whitten, Senior Writer, Home Loans

Regardless of what's happening in other sectors of the economy, the Australian property market has proved surprisingly resilient.

Early in the pandemic, property prices started to fall in many cities, including Sydney, Melbourne, Brisbane, Perth and Hobart. This wasn't surprising, given the restrictions put in place on the real estate industry. At the height of the pandemic, open house inspections were cancelled and auctions went online. Clearance rates and listing volumes fell.

As the restrictions ended in Sydney, price falls slowed. The most recent CoreLogic data from October showed a slender 0.1% rise over September, suggesting a recovery is underway. And while Sydney prices are still down from their peak, the figures show an annual increase of 6.1%.

Melbourne has faced much tougher COVID restrictions for much longer than any other Australian market. Understandably, this has dampened real estate activity in the city. The same October figures show a quarterly decline of -2.2% in the Victorian capital, and a much smaller monthly drop of -0.2%.

Melbourne was the only city to record a month on month decline last month. As restrictions ease we can expect to see prices recover there too.

Housing policy and low interest rates are two factors buoying the Australian property market even as the economy slows. Interest rates for home loans in Australia are at record lows after the Reserve Bank cut the official cash rate six times since June 2019.

These cuts, designed to boost borrowing and spending, have made home loan rates lower than ever. This makes borrowing costs cheaper and tends to have an upward effect on property prices.

In policy terms, the federal government added more places to the First Home Loan Deposit Scheme this year, helping first home buyers enter the market with low deposit home loans while avoiding the cost of lenders mortgage insurance.

The introduction of the HomeBuilder grant has also boosted home construction, with construction loans rising 5.9% in September according to the latest ABS figures. Looking to the future, the government is also planning to loosen restrictions on lending with reforms to the National Consumer Credit Protection Act. This will make it easier for lenders to provide credit to home buyers.

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The recession's impact on credit cards

Amy Bradney-George, Acting Editor, Credit cards

Lack of job security and more financial pressures could lead more people to rely on their credit cards, increasing the risk of further debt.

While credit card use has been dropping over the past few years, data from the RBA shows there are still some 13.8 million cards in circulation in Australia, with almost $39 billion total in debt.

Unlike home loans, personal loans and other accounts, credit card interest rates are not closely tied to the RBAs official cash rate. So, any changes the RBA makes to help ease household pressure are unlikely to affect your credit card's interest rate.

In fact, the average interest rate for credit cards has remained around 19% p.a. for the past decade.

This puts even more strain on people who are using a credit card to help them get by, or who can't afford to pay off the entire balance in one go.

Moving debt to a card that offers a 0% p.a. introductory rate – or getting a card with an ongoing low rate – can help people get some relief. But there can also be challenges in getting approved for a credit card if you don't have a steady job, with credit card providers often including employment or regular income as part of their eligibility criteria.

If the chances of getting approved for a credit card are too low, people could also consider talking to the credit card company about hardship options, consolidating it with a personal loan or calling the national debt helpline on 1800 007 007.

The current uncertainty in Australia is also influencing how people use credit card rewards, with more people choosing to use points on gift cards instead of travel (which is still limited).

According to Citi Australia's head of cards and loans, Choong Yu Lum, COVID-19 has had a clear impact on how people are using reward points.

"This year, these consumers can't make the most of travel benefits so they are choosing whether to hold onto their points for when travel returns, or to cash them in for another purpose," he said.

"At Citi, we're seeing our customers take advantage of the vast Citi Rewards options they have available such as gift cards or e-vouchers."
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The recession's impact on the stock market

Kylie Purcell, Investments Editor

You might have noticed just how out of touch the stock market is with the economy this year. Just a few months ago, many of us were warily eyeing our stock portfolios as Australia entered its first recession in almost 30 years. Would it trigger another stock market crash?

The funny thing is, the stock market barely seemed to notice that we were entering a recession.

On 3 June, the day our recession became official, Australian shares (S&P/ASX 200 index) actually rose by more than 1.3%. By then, the market had rallied by over 30% from its March low, even as global COVID-19 infection rates continued to go up.

The point is, the stock market is a separate entity to the economy. How the stock market behaves in relation to the economy comes down to a lot of factors, including interest rates, global trade policies, the property market and predictions (both wrong and right) about the future.

Even if Australia's recession has officially ended by the standard definition (two-quarters of negative growth) it's very hard to tell what the market will do moving forward. More important will be the policies carried out by central banks and our government.

If bank rates (savings and term deposits) stay at record lows and the property market remains out of reach for many Australians, the stock market will continue to be an attractive option for investors, even if it is riskier.

That being said, if we develop a COVID-19 vaccine and global economies truly start recovering, I think it's safe to say the stock market reaction is likely to be positive. In particular, listed companies that have been hard hit by the pandemic, such as tourism, bank and airline stocks are expected to rally as borders and businesses are allowed to open up.
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The recession's impact on spending and saving

Alison Banney, Editor, Banking and Investments

Regardless of what the GDP figures look like, the unemployment rate, and more importantly the underemployment rate, is still high. That's not something that simply improves overnight.

With millions of Australians either out of a job or not working as much as they'd like to be, people will continue to spend less on things like dining out, entertainment and retail shopping.

In turn, with people spending less, businesses will likely need to keep staff numbers low or make further staff cuts. This means that it will continue to be tough to find secure work as there's so much competition.

Meanwhile, if you've got a secure job, it could be quite hard to negotiate a pay increase for a while. It's a good idea to maintain an emergency fund in a savings account with three months worth of living expenses, just in case you find yourself suddenly out of work.

Where to from here?

Whether or not we are technically still in a recession, the fact remains that the economy is still under-performing, according to Dr Andrew Wilson, chief economist at Archistar.

The November RBA cash rate reduction, if passed on by banks to their customers, is "clearly good news" for mortgage holders, he said, and may provide the economy with increased consumer spending potential.

However, Wilson added, "Not everyone is a winner from lower interest rates".

"Deposit rates are set to go lower from already near zero levels, which is not good for those [who] rely on incomes from bank deposits," he said.

"The potential for further cuts is now clearly constrained as we move towards zero – a level that the RBA bank is surely unlikely to move to. So, enjoy it while it lasts."

Whatever your situation, this is the ideal time to get your finances in shape. Whether you're ready to refinance to a cheaper home loan, get a better deal on your credit card or make sure your bank balance is earning the highest possible interest, there are big savings and potential profits to be made.

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