Wondering what happens if the real estate market crashes? This detailed guide breaks down how to prepare, the importance of mindset, and how the 18.6-year cycle influences market trends. Learn key strategies to stay ahead of a potential market correction, avoid emotional decisions, and seize future opportunities.
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What happens if the real estate market actually crashes?
I'm going to share exactly what I would do if the market was to crash tomorrow and how I would prepare for what's about to come.
If you're interested in my thoughts, definitely keep reading!
Now, you probably want to ask me, "Ravi, what happens if the real estate market crashes?"
The first thing I want to cover is the idea of mindset.
I've definitely heard people say, "I'm not going to buy right now because things are good. I'm going to buy when there's blood on the streets, when the market crashes. Nobody wants to buy, that's when I'll go in." That's what I've heard.
The truth is:
So when times are good and you've got analysis paralysis, thinking the market's going to crash, and you don't want to invest because it's going to go lower—what makes you think you're going to have the right mindset to buy when the market is actually crashing? You're not going to know how to deal with your emotions; you're not going to know how to deal with it logically.
So far, the only reason you're not investing in the last couple of years is because you're listening to the wrong people and the media, which suggests that every second day the market's going to crash.
If you can't let go of the emotions of listening to all the fear and instead focus on the data, the data would point you to say this has been the greatest time to be buying real estate. In fact, you would have made so much money in the last couple of years if you had just invested well.
I'll give you an example:
In 2018 and 2019, I was talking to a lot of people, and they knew at that point I had a bit of a portfolio, so we were chatting about real estate. The response I got from them was, "Oh look, times are tough. Given that the Royal Commission has come in, the lending crisis is here, there are so many lending restrictions with buffer rates, interest-only loans, and the ratios—this means the real estate market is cooked, it's unaffordable, and prices will go down." This was in 2018 and 2019.
Those same people who could buy at that point basically said to me they didn't want to buy then.
In 2020, when things did get tough, we had a brief period where prices stagnated and even went down. Negotiating power for buyers was through the roof because people were panic selling. At that point, those same people were like, "No, I'm not buying now. Do you not know there's a pandemic? Prices are going to fall by 30 or 40%." That's what the media and banks were saying, and even economists.
Therefore, they didn't buy in 2020.
What happened in 2021? Interest rates were so low, prices went through the roof, all this artificial money came into the system, and prices started moving higher for assets. Suddenly, they felt like they were missing out. Before they jumped in, interest rates started going up, and they were like, "Well, interest rates are going up now, so the real estate market is going to crash."
In 2020, they didn't buy; in 2021, they didn't buy; in 2022, they didn't buy; in 2023, they didn't buy.
Now we're in 2024, and guess what they're saying right now? "I'm not going to buy because prices are so unaffordable. Prices have moved up so quickly. What I want to do is wait for the crash, and when it happens, that's when I'll buy it.”
So the question I have for them, as well as for yourself if you've had this mentality, is: what is going to miraculously change for you to change your behaviour?
If you think about this logically, you're going to look at data, right?
When you look at the data with a data-driven approach, you'll see logically that it makes sense because there’s not enough supply, no incoming supply of new real estate, and we're just about to open up the floodgates as interest rates cut and people’s borrowing capacity goes through the roof.
We’re going to have a lot more owner-occupiers jumping into the market, buying emotionally because they were out of the market for the last couple of years thinking, "This is my last time ever. That's going to drive prices even further, yet I want to wait because I believe there's a crash.” This would line up perfectly with the 18.6-year land cycle. (I've made a YouTube video about this, which you should definitely go check out.)
The thought is that in 2025 or 2026, we should see the market crash when it comes to land cycles.
However, the one thing I would say is that this is also contingent on Western economies; it's not specifically for Australia. It's also off by a couple of years, give or take—that's why it's an average.
My belief is that we're probably not going to see any sort of crash until probably 2027 at the earliest. Now, I could be completely wrong, but that's not the point here. The point is: what are you doing to prepare for a crash, and if there is no crash, how will you feel then?
That's the reality that so many have faced, especially those who invested or were active in the market in 2006, 2008, 2009 with the The Global Financial Crisis (GFC), and then post-GFC. There are always going to be arguments from those saying prices will never go lower, or from those who argue that prices will never go higher, and you're going to find yourself in between people who say it's going to go up and those who say it's going to go down.
I would argue that I'm in a better position than most average people when it comes to real estate investing because:
Based on all our findings, we have a very good idea of what’s happening in the market now, and what’s about to happen in the next 6 to 12 months. So far, in all of our findings, we definitely don’t see a sizable crash in the next 12 months.
You might be thinking, "Why would this buyers' agent who's clearly biased tell us the market isn't going to crash? He's obviously promoting people to go buy property."
You might be right, but the reality is: I'd rather be historically correct than just pump my business for the next six months and then lose all credibility altogether.
This is why I bring out more blogs and video content than anyone else in this space—I just want to help as many people get the right information.
Right now, there is far too much nonsense out there, with people saying things like:
"Buy this off-the-plan apartment, it's the next best thing."
Or…
“Buy a house and land package, it's the next best thing."
No, no, forget that. You need to look at the numbers and execute with speed. It's as simple as that.
If you can go out there and make five calls, it's going to be better to make 50 calls.
If you've never spoken to an agent versus someone who has and bought a couple of properties over the last 12 months, it's clear who’s going to get the better deal.
That's what I urge you to think about:
The whole idea with real estate is that you want to be in the game for as long as possible.
You know when people get out? It's when they panic sell. They buy and sell based on emotions, and that’s exactly what you want in a real estate market.
So the way I'm personally looking at this is that a real estate correction or crash is actually healthy. It happens across all markets, has been happening for the longest period, and will continue to happen.
The market will never just go straight up in a line; there will always be corrections. What happens during corrections is that it shakes the foundations, and we see who holds for as long as possible. Anyone who can't hold will miss out on the gains that come in the next 8 to 10 years.
If you're buying something today and you think, "Well, if the market crashes by 20%, I’ll go bankrupt; I can't hold this property, I’ve lost money," then you're probably not going to have the right mindset on the way up, and you don’t deserve to be part of the growth that comes with it.
Think about this: when there was so much fear in 2019 and 2020 about prices going lower, those people who bought during that time would have been known as the perfect investors. They perfectly timed it, and as a reward, they got exponential gain.
There are certain markets right now where the momentum is really strong, so prices have continued to rise much higher very quickly. Then, there are other areas that are stagnating—they're not going up—and some areas are actually still going down. You need to be careful about what you buy and what asset type you're actually buying as well.
Now, I spoke to someone two weeks ago, and they told me, "Ravi, it's actually less risky for me if I buy something off the plan or a house and land package because I only have to put a 5 or 10% deposit down now, and then the rest I can pay in 18 to 24 months."
I said, "Okay, sounds interesting. So, you believe that the risk is greater because you get to buy something established, with data, and that exists with long-term trends, and that is more risky because you have to put up a 10% deposit and take on a loan versus going out there and saying, 'I just need to put a 5% deposit down and hope that it gets built in 18 to 24 months'?"
I repeated that, and the person said, "Yeah, you make a good point."
However, the reality is they still needed to weigh up whether one decision was better than the other.
Now, this is a really good point for you guys: it's to understand that if you're not in that situation, you can see clearly, logically, what the better decision is.
Why? It is because:
Therefore, what I would want to be doing is buying established stuff now. I can control the narrative, and the way that I would go about doing it is what changes.
So, how would I go about doing it if I was buying real estate today?
I'm still buying real estate today, and the way that I do it is exactly the same way I've been doing it until this point: I'm going out there and I can get the maximum Loan-to-Value Ratio (LVR) position that I can, which I know is scary for a lot of people. "Why would I go and do that? The market's about to get cooked!"
Well, I'm just giving you my opinion. This is what I'm doing, and I'm saying that based on all of our data, the next 12 months suggests it's clear sailing.
In fact, it's suggesting to us, in line with the 18.6-year cycle, that we may be entering the:
This usually could go for about two years.
Now, what we will see during this time is we will see prices so much higher, and yes, people suggest that we've already seen the winner's curse start in areas like Perth. I would go on to say that: yeah, maybe that's true, but there's no guarantee it ends in two years.
Instead, right now, I would be investing in real estate just like I was, but being extra aggressive purely because I know the banks are starting to cut rates.
The Reserve Bank of Australia (RBA) knows that their next move is most likely a rate cut. Now, it's not a matter of if; it's a matter of when. I know inflation might be a problem now, but it may not be in six months.
I would go on to say: you need to look and pay attention to the trend of inflation. Look at the rate of growth of inflation and how it's been declining over time. That is where your answers will lie.
The way that you know this is correct is because you just need to look at the flipped situation when it came to disinflation, which led the interest rate to be cut initially, then increased over time, but it made no effect. So, if you're thinking about interest rate cuts and there's going to be 50 basis points or 100 basis points, it most likely won't have a major effect on the economy but will definitely allow a lot more people that are sidelined to come into the market because now their borrowing capacity has just increased.
If they're looking to buy a home, you better believe that's their chance to get in, and that's what's going to happen in the next six to twelve months.
So, how is that going to change my thesis from now to investing in 12 months' time?
Well, in 12 months' time, we'll obviously look at the data, and we'll be ahead of the curve. At that point, what I might do is say, Instead of purchasing two properties and maxing out, having no emergency fund, I would go on to purchase one investment property.
I would start preparing and having the mindset that if we did see prices fall by 10%, I'll be able to purchase another property. If it falls by 15 to 20%, I can purchase two more properties. This will all be dependent on the fact that:
Most importantly:
I can tell you now, there are people out there that are investing right now, who will be able to adapt, and when things aren't looking so great, they'll go in and they'll buy as much as they can. They'll have the mindset, plus the cash and equity, which is going to be far greater than the average person, to be able to go out there and scoop up what they want.
I believe we will have a correction in the next three to five years, but I don't think that should stop you from investing in real estate and building your machine. There is a way that you can do this that's sustainable. If you have the right strategy and the guidance, you'll be able to know:
There's a saying that you should never let a great crash go to waste—it's always an opportunity to get some more.
It's the same thing we apply when it comes to the stock market and cryptocurrency, although at this point, most people are completely burnt by that. But better believe me, in 2025, there's going to be so much content about crypto, and it's going to be all over mainstream media.
I'm starting to structure my portfolio to prepare for the next three to five years, and I have more of an incentive to think about this because I have a business that operates in the real estate space.
Therefore, I have to think about it not just for my own portfolio, but then I have to think about it conservatively for how I maintain a headcount of 40+ staff at that point, who are employed full-time at Search Property, and not only that, but then be able to grow during those periods of time.
I am so confident, having seen consumer behaviour and studied it for years and years, to know how most people react in situations.
I've just seen that thesis play out when it came to the pandemic, and I believe we're going to see it play out again in the next couple of years.
We will see the next seismic shift when it comes to wealth generation and the wealth transfer because the smart money will go in, prep in the next 12 months, while the dumb money will go in there and say, "I'm going to buy as much as I can, I don't care what price they're at,” and will end up buying the wrong stuff because they didn't have the right strategy.
Key Takeaways
Here are the three key takeaways:
If you don't have one, you will fail in the next five years. You could get lucky and buy a property now and it does okay, but if you don't have it planned out well for the next couple of years, you will fail.
I'm not just saying there's no good time to be buying—I think opportunities will present themselves, and you need to put yourself in the best position to be able to actually execute on those.
Believe it or not, you need to have a team. If you're doing this by yourself, believe me, the pandemic shook me as well when it came to my emotions. That's why you need to have the right people around you to guide you.
Think of it like this: I'm thinking about this logically, and I say, I come up with this strategy when times are good. When I look at the same strategy when times aren't so great, the emotions will kick in.
I remember feeling this as well because I bought a lot of property in 2020 when most people weren't touching it, and I said, "Okay, I need to go back to my strategy. I had the right people around me, and they guided me with their logic to say, ‘Ravi, you signed up for this. You know exactly how this was going to play out. It's playing out. You just need to weather the storm but trust the process.’”
This is why if you're not someone who's seasoned at investing or has a large portfolio, you need to go and team up and outsource the entire thing.
Why? Because when times get crazy (which they're about to get), you're going to fall behind. Once you make a move here, unfortunately, a move here is getting made, and it's going to be so volatile that you'll probably end up walking away from the market altogether.
There is so much negativity out there when it comes to personal development, learning about things, understanding investing into real estate, investing into assets, growing businesses—it's all negativity, but it's usually by people that have never done it before.
What I'm saying to you is, figure out what your strategy looks like and be optimistically cautious.
What you need to do is say: Okay, I can go and buy six or seven properties in the next two years, but is it the right time to buy? Okay, well, if I don't have the answers, I need to outsource that and get the expertise. Then, if I am going out there and scaling up a portfolio (which I think a lot of people will be able to do a lot easier in the next couple of years if they start now), they'll have the cash and equity to be able to execute.
Why?
Think about this: if you have the cash and equity as property markets go up by another 20% before we see a market correction, what happens if the market corrects 10%?
Now, that would be scary at that time, but if it's only 10% and the market has grown by 20% leading into it, are you going to feel like you're further ahead or further behind?
If you haven't worked on your investing muscles, you haven't got that property that went up by 20%, and you took out equity just to sit there in case a situation occurs, you're not going to have that available to you.
So who do you think is going to be able to move faster—the person that's active in the market, has a team around them, or yourself, who has to navigate your own emotions, your partner's emotions, and all your mates that are telling you: Hey, I knew Ravi was going to be wrong, screw him. Now we can go and comment on his video and say that he was wrong.
The final point I'll make is: you can go back and ask any person that bought at the hype of 2008–2009, at the hype of 2016–2017, before we saw the market crashes and corrections here in Australia. They will go on to tell you in 2024 that:
This is despite the fact that they bought at the top, the markets corrected, and there was so much volatility.
Right now, they would be up by at least 50 to 100% more than what they paid for back then. This next correction, whenever it comes, will be exactly the same.
Yes, you can go on to argue that the dynamics will be different, but the markets often rhyme.
I hope you guys have taken some valuable insights from this article. If you want to move at speed and get into the market before the craziness starts, book a FREE discovery call with my Search Property team to get structured properly, get the portfolio right, get the lending and the structures right, so you can start making those moves before everyone else comes into this market.
Again, you need to have a plan, a structure, and a process, and that's the stuff that we help people with because we like to help people scale up their portfolio to make meaningful differences to their own lives. So if you want that help, reach out to us.
I hope you guys have enjoyed this one. I'll catch you guys in the next one.
Thanks, guys!
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