Everyone Says the Economy Is Terrible. Here's Why You Should Buy Property Anyway.

Everyone I talk to says the same thing. "Yan, the economy is tanking. My friend just lost his job. Shops are closing everywhere. How can you tell people to buy property right now?"

I'm going to say something that might sound reckless: the worse the economy gets, the stronger the case for buying property becomes. Not weaker. Stronger.

Before you flame me in the comments — hear me out. I'm going to show you 40 years of data that proves Australian property prices and the broader economy are far less connected than you think. And then I'm going to explain the specific mechanism that makes bad economic news actually beneficial for property prices.

The answer involves the RBA, migration, and a supply shortage that no amount of economic weakness can fix.

Forty years of evidence: property doesn't follow the economy

Pull up any chart of Australian residential property prices alongside GDP growth over the past four decades. What you'll see might surprise you.

During the early 1990s recession — when unemployment hit 10.9% and GDP contracted — Melbourne house prices dipped for approximately one quarter before resuming their upward trajectory. During the GFC in 2008-2009, Australian property barely flinched while global equity markets halved. During COVID in 2020, property dropped briefly before staging its largest boom in a generation 1.

The pattern is consistent: property downturns in Australia have never lasted more than six consecutive months. Not once in 40 years. Every correction was short, shallow, and followed by a recovery that exceeded the previous peak 1.

Why? Because Australian residential property is not primarily driven by the domestic economy. It's driven by population growth, migration policy, and housing supply — factors that operate independently of GDP growth.

When the economy weakens, people don't stop needing somewhere to live. They don't evaporate. If anything, a weaker economy forces more people into rental accommodation (because they can't afford to buy), which tightens the rental market and pushes rents up. Higher rents flow through to higher property values with a lag.

"The chain from 'bad economy' to 'lower property prices' is extremely long," says Yan Zhu. "People sell their car first. They cut dining out. They cancel the holiday. They downgrade their phone plan. The house is the absolute last thing they sell. By the time enough people are selling houses to move the market, the economy has usually already started recovering."

The RBA response: bad economy equals lower rates

Here's the mechanism that makes economic weakness bullish for property.

When the economy slows, the RBA cuts interest rates to stimulate activity. Lower rates mean lower mortgage repayments. Lower mortgage repayments mean higher borrowing capacity. Higher borrowing capacity means more buyers can enter the market. More buyers competing for a fixed supply of housing pushes prices up 2.

The US Federal Reserve has already pivoted to cutting rates, with its September 2024 cut signalling the turn in the global rate cycle. The new Fed chair is widely perceived as dovish. Australia tends to follow the global rate cycle with a lag, and the consensus among economists is that the RBA will begin cutting rates in the first half of 2025 2.

Every 0.25% rate cut adds approximately $20,000 to the borrowing capacity of a household earning $130,000 per year. If the RBA delivers three cuts in 2025 (which is the market's base case), that's $60,000 of additional borrowing capacity flowing into the housing market. That money has to go somewhere, and in a supply-constrained market, it goes straight into prices 3.

So the paradox resolves itself: bad economy → RBA cuts rates → borrowing power increases → property prices rise. It's happened in every single Australian economic downturn since the 1990s. There's no reason to expect this cycle to be different.

Migration: the demand factor the economy can't switch off

Australia's property market is fundamentally a migration story. In the 12 months to June 2024, net overseas migration to Australia was approximately 500,000 people 4. That's 500,000 additional humans who need housing.

They're not camping in parks. They're renting apartments, sharing houses, and — as soon as they have residency and savings — buying property. And they're disproportionately settling in Melbourne and Sydney, because that's where the jobs, universities, and community networks are.

The crucial point: migration numbers are determined by federal government policy, not by the state of the economy. Even during COVID, when the borders were closed, the government had already set the quota for post-reopening migration at record levels. Economic weakness doesn't reduce migration — if anything, governments increase migration during downturns to stimulate demand and fill labour market gaps 4.

500,000 new residents per year. Construction running at roughly 170,000 new dwellings per year 5. That's a structural deficit of 330,000 homes per year. The economy could be in recession and this gap would still exist. It's a supply-side problem that monetary policy and economic conditions cannot solve.

This is why property prices kept rising through every economic wobble of the past two decades. The demand is structural. The supply shortage is structural. The economic cycle is just noise layered on top.

What you should actually worry about (and what doesn't matter)

If the economy is mostly irrelevant to property prices, what actually matters?

Interest rates. This is the single biggest driver of short-term property price movements — the cash rate sets borrowing capacity, and borrowing capacity sets what buyers are able to bid. Which way rates move next, and when, is not something we can tell you. The RBA publishes its reasoning after every meeting, and that is the source to read rather than a buyer's agent's guess.

Supply. Victoria's rental stock has shrunk by 20,000 properties in 18 months 6. New construction is running well below demand. Until the supply gap closes — which is years away at current building rates — prices will have structural support.

Affordability band. The properties most sensitive to rate cuts are the ones at the affordable end — $600,000-$850,000. That's where the first extra dollar of borrowing capacity tends to get spent if capacity increases — and it is also the band that feels it first if capacity tightens instead. The sensitivity runs both ways.

What doesn't matter: newspaper headlines about GDP growth, anecdotal evidence about businesses closing, or your cousin's friend who got laid off. These are real human stories, and I don't minimise the pain. But they don't predict property prices, and making investment decisions based on them means you'll be permanently sitting on the sideline while the market moves without you.

Our approach hasn't changed: affordable houses on large blocks in suburbs with strong rental demand. When sentiment is cautious there are observably fewer bidders in the room on a Saturday, and that is a real difference you can go and check for yourself at any auction. How long it lasts, we don't know. What we will say is that nobody should buy a house because the person selling to them says the window is about to close.

"I tell every client the same thing," says Yan Zhu. "Don't listen to what people are saying about the economy. Look at what the data is doing. The data says vacancy rates are at record lows and migration is at record highs. That's what I look at, and it's all checkable. What rates do next, nobody knows — and anyone who tells you they do is selling you something."