Where the real recession risk lies

Headlines proclaiming the chances of a recession are missing the full story.

Summary: Some commentators are expressing concerns about a housing recession and risks to bank stocks. But although house prices are rising, a fall in prices alone doesn’t cause recessions – what’s also needed is a slump in housing construction, or bank insolvencies. Falls in residential construction do happen, but this call is extremely premature. Plus, every recession in an advanced economy in modern times has been caused by tighter economic policy, on the back of rising inflation, which is not a risk for Australia now.

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