{"id":40251,"date":"2022-09-18T19:44:28","date_gmt":"2022-09-18T07:44:28","guid":{"rendered":"https:\/\/propertynoise.co.nz\/au\/?p=40251"},"modified":"2022-09-18T19:44:28","modified_gmt":"2022-09-18T07:44:28","slug":"inside-3-8-trillion-property-market-forecasting-mistake","status":"publish","type":"post","link":"https:\/\/propertynoise.co.nz\/au\/inside-3-8-trillion-property-market-forecasting-mistake\/","title":{"rendered":"Inside $3.8 trillion property market forecasting mistake"},"content":{"rendered":"

PHOTO: Australia’s property market. FILE<\/strong><\/p>\n

A grave forecasting error in 2020 saw Australia\u2019s property market go haywire. Now the same thing could be about to happen all over again.<\/p>\n

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ANALYSIS<\/strong><\/p>\n<\/div>\n

Inflation is running hot,\u00a0interest rates\u00a0are on the rise, and talk of a recession in Australia and around the world is reaching fever pitch. The\u00a0property market\u00a0has softened from the highs of 2021, and is tipped to fall further in the months ahead.<\/p>\n

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Fear and uncertainty is high. But with the huge forecasting errors from banks and the Reserve Bank (RBA) over the last couple of years, many are questioning how accurate these forecasts actually are.<\/p>\n

At the start of the Covid pandemic in 2020, forecasters were predicting a 20 per cent drop in property values around Australia. Based on the $7.71 trillion\u00a0Australian property market, this would have equated to a drop in the value of Australian property of over $1.54 trillion.<\/p>\n

But instead, through to the end of 2021 the value of property actually\u00a0increased to $9.95 trillion, reflecting a total increase in property value of over $2.24 trillion. This reflects a forecasting error of over $3.78 trillion. How did they get it so wrong?<\/p>\n

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The state of the market today<\/b><\/span><\/p>\n

The property market around the country has softened, with national\u00a0house prices\u00a0down an average of 4.4 per cent from the top of the market late in 2021, with some markets like Sydney falling even further at 7.4 per cent from the top of the market.<\/p>\n

The banks and forecasters are expecting further declines, with ANZ recently releasing a report forecasting a further 20 per cent decline in property prices before markets recover. If this happens, it would make the largest downturn on record in Australia.<\/p>\n

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House prices have dropped 4.4 per cent nationally. Picture: Newscorp- Daily Telegraph \/ Gaye Gerard<\/strong><\/em><\/div>\n

These current and potential declines are largely driven by interest rates increasing at a record pace of 2.25 per cent over just the last five months to combat the current inflation crisis. These interest rate increases have\u00a0added $733 to the monthly repayments on the Australian average mortgage of $622,076.<\/p>\n

The experts are predicting rates will rise further over the months ahead, adding to the pain for mortgage holders and putting further pressure on the property market.<\/p>\n

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What drives property prices<\/b><\/span><\/p>\n

There are a heap of factors that drive property prices, supply and demand is the foundation, but these are impacted by what\u2019s going on in the economy, wage growth, interest rates, unemployment, household savings, inflation, and the list goes on.<\/p>\n

But through time, the single factor that has the strongest link to movement in property prices is \u2018sentiment\u2019. It might seem a bit odd, that the biggest thing that drives what\u2019s going on in Australia\u2019s $6 trillion housing market is our feelings.<\/p>\n

And here\u2019s the thing, our feelings can change pretty quickly.<\/p>\n

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At the start of Covid, many Aussies were fearful of how things were going to play out. In between panic buying toilet paper and hand sanitiser, we occupied ourselves by imagining how the world might end, and fear levels were insanely high.<\/p>\n

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House prices are largely driven by sentiment and feelings. Picture: Lisa Maree Williams\/Getty Images.<\/strong><\/em><\/div>\n

But the world didn\u2019t end. And\u00a0the property market didn\u2019t crash, in fact it went in the complete opposite direction, with property prices rising at the fastest pace on record to the end of 2021.<\/p>\n

The forecasters are often wrong.<\/p>\n

Over the years I\u2019ve heard a lot of predictions about the mythical property market crash in Australia. But, through all the economic cycles over the last few decades, it just hasn\u2019t happened.<\/p>\n

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How to buy smart and make money<\/b><\/span><\/p>\n

Here\u2019s the thing \u2013 properties that were good properties 12 months ago while the property market was running hot are still good properties.<\/p>\n

Good properties were good value then. Good properties will be good value on the other side of this current market turbulence. And in my opinion, good properties are good value today.<\/p>\n

Maybe the forecasts will be right and the property market will soften further over the months ahead before it rebounds. If you buy a property today, it\u2019s possible that a year from now you\u2019ll look back and see that you could have picked it up for a little cheaper if you\u2019d bought a couple of months sooner or a couple of months later.<\/p>\n

But maybe they\u2019ll be wrong again, and by waiting you\u2019ll have missed out on the opportunity to make your next smart property move.<\/p>\n

And either way, in my opinion, it\u2019s highly unlikely that 10 years from now you\u2019ll be regretting your purchase, because by then the current property market wobbles will be a distant memory.<\/p>\n

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Plan smart<\/b><\/span><\/p>\n

If you are buying today it\u2019s crucial you plan smart.<\/p>\n

You need to make sure you\u2019re ready for interest rate rises. You need to be prepared for economic uncertainty. And you need to be confident the property you buy is one that will perform well over into the future.<\/p>\n

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If you buy you need to be prepared for economic uncertainty. Picture: Lisa Maree Williams\/Getty Images.<\/strong><\/em><\/div>\n

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