Unemployment spent most of 2022 at a 50-year low, but B.Invested founder Nathan Birch believes the tide has turned and we can expect an imminent rise in job losses.
In fact he believes these are already underway, but are currently underreported.
He says the world has already entered a recession and a lot of what is happening now doesn’t get reported until a little later due to data lag.
So who is in the best position and who is more at risk?
Recession proof assets
Times like these are why Nathan has always talked about the importance of a recession proof property portfolio. The portfolio may not be sexy or flashy, but the fundamentals are very strong, because the assets are at the affordable end of the market, where there is always demand.
If there is a downturn and people lose their jobs, they can still afford to pay your rent with the assistance they get from Centrelink.
Rising interest rates don’t bite as hard and properties in lower cost brackets are unlikely to suffer the kind of price falls that the top end may experience.
At risk portfolios
Someone with a flashier portfolio containing properties that may be up around the $800k purchase price range and negatively geared or neutral, are hit much harder when interest rates go up and there is less demand from renters in their price bracket.
These properties, which may have been overinflated in value when purchased, then end up selling for a discount because their owner can’t make repayments anymore. Nathan likens it to when there is a recession and flashy cars like Lamborghinis hit the market for sale and no one wants them, while basic cars like Camrys, Hyundais, etc maintain their demand and value.
When can things turn around?
Nathan believes markets will rise again when the RBA reverses monetary policy and begins cutting rates again.
He believes the policy reversal will happen sometime this year and the next growth cycle will occur 6-12 months after that happens.