Three key reasons the housing crash is over, according to Commsec's Tom Piotrowski.

Buy now: Why house prices are about to go up

Property prices seem to have begun to edge back up, but there’s a lingering risk on the horizon that could make the recent lift very brief indeed.

The word being whispered in financial markets around the world is this: recession.

The long run of post-GFC growth is beginning to tire, and technical indicators are hinting the US economy could soon enter recession.

A recession is defined as two consecutive three-month periods where economic growth is negative. Another way of putting it is the total amount of income earned shrinks across the whole economy (the normal state of affairs is ever-rising income).

A US recession would wreak havoc on the global economy. Would Australia be insulated? We have dodged the effect of US recessions in the past. They had a recession in the year 2000 and one in 2008, both of which we avoided.

But back then, our economy had a bit more resilience baked in. These days we have already cut interest rates to record lows, meaning we have less space to use monetary policy. The RBA won’t be able to cut rates like it normally would in a downturn.

What’s more, our household debt is very high and our wages growth is very low. The state of the household sector is fragile, and there’s a valid question over whether people would keep spending as a global recession looms.

So it’s worth asking the question of what happens to property prices in a recession.

To answer that we need to turn back the pages of history and look at the early 1990s.

Australia last notched two consecutive quarters of negative GDP growth in 1990-1991.

What happened to house prices back then?

Nationwide, they had been flat or falling even before the start of the recession. The flat spot continued for a while, but even before the recession ended, house prices began to bend back up.

This shows the relationship between house prices and economic growth is not direct and simple.

When you separate out the various housing markets around the country, an even more complex picture emerges. Even while the market overall was capitulating, some places thrived.

The biggest loser was Melbourne. House prices fell by more than 6 per cent. Queensland did well out of this — it was the era when Melburnians were fleeing a grey and moribund city for the sunnier climes of the Gold Coast.

As the graph above hints, Melbourne bore the brunt of the last recession, although Melbourne prices later caught up (note this series goes only until 2005).

The idea that house prices can move very differently in different parts of the country is not an unfamiliar one in Western Australia, where house prices sank dramatically as the mining boom receded.

Nor is it unfamiliar in Tasmania, where prices have skyrocketed in recent years, even as the mainland press groans about house price doom and gloom.

So one thing to expect in a recession is for different parts of the country to perform very differently.

The kind of recession we have will probably determine where is hit hardest. If it is a financial crisis, Sydney can be expected to suffer. If the price of resources collapses, Western Australia and Queensland will suffer.

According to realestate.com.au chief economist Nerida Conisbee, the trade war is an important factor.

“One scenario could be a big lift in the WA economy as the US-China trade war forces China to buy more mining and agriculture from Australia as opposed to the US,” Ms Consibee said in a note to clients. “Melbourne and Sydney are more sensitive to multinationals cutting jobs and may be hit harder. If this is the case, it could look like a post-GFC type impact.”

Despite Australia not sinking into a recession, the GFC was hard on Sydney’s property prices. The median price of established home transfers fell from $540,000 in 2007 to $448,000 in 2009. These numbers would shoot up to over a million by 2017.

The lesson of all this is that property prices can fall outside a recession, just as they can rise during a recession — and the national average can hide all sorts of risks and opportunities.

Jason Murphy is an economist. He is the author of the new book Incentivology. Continue the conversation @jasemurphy