{"id":42729,"date":"2023-04-03T13:10:30","date_gmt":"2023-04-03T01:10:30","guid":{"rendered":"https:\/\/propertynoise.co.nz\/au\/?p=42729"},"modified":"2023-04-03T13:10:30","modified_gmt":"2023-04-03T01:10:30","slug":"fools-or-forecasters-can-expert-property-predictions-be-believed","status":"publish","type":"post","link":"https:\/\/propertynoise.co.nz\/au\/fools-or-forecasters-can-expert-property-predictions-be-believed\/","title":{"rendered":"Fools or forecasters: can expert property predictions be believed?"},"content":{"rendered":"

PHOTO: Crystal ball gazing into property prices has always been a flawed but hugely popular pastime.<\/strong><\/p>\n

REPUBLISHED WITH PERMISSION | API MAGAZINE<\/a><\/p>\n

Property forecasts are never far from the top of our newsfeeds.<\/p>\n

The media laps them up (yes,\u00a0even API Magazine<\/a>), the public click on them, and yet so few of these predictions turn out to be accurate. Why is it these experts are so rarely held to account?<\/p>\n

That\u2019s the question I pondered back in 2019, and every year on April Fools\u2019 Day we release our scorecard, the\u00a0Fool or Forecaster Report<\/em>, dissecting what really happened versus what was forecast.<\/p>\n

\"Perth\"<\/a><\/div>\n
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It\u2019s official: This is Australia\u2019s most affordable city | WATCH<\/a><\/h2>\n<\/header>\n<\/div>\n

In the 2023 report we have tracked not just property price predictions, but also interest rate forecasts.<\/p>\n

What a rollercoaster year it was, with lots of backtracking and revisions. As with previous years, the question isn\u2019t so much, \u201cwho got it right?\u201d, but \u201cwho got it the least wrong?\u201d<\/p>\n

Why are forecasts made?<\/strong><\/h2>\n

Some of the most prolific forecasters are economists who work for banks and other financial institutions.<\/p>\n

They need to have a view on where things are heading so they can steer the business and fulfil their duty to shareholders.<\/p>\n

When listening to property market predictions (as well those made about the share market and elections, for that matter) we need to recognise that the experts are using aggregated data in order to make big decisions, often of a corporate nature.<\/p>\n

There is little value in an individual buyer or seller basing their decisions on these predictions, especially given the low level of accuracy!<\/p>\n

Nevertheless, many do. They pile into the market when prices are tipped to rise, and sit on their hands when they\u2019re falling.<\/p>\n

Instead, what should happen is that each and every individual conducts their own research, with a particular focus on local market dynamics.<\/p>\n

But here\u2019s the thing, at least economists are educated, use accepted frameworks and are trained to do the sort of research and modelling required to make their predictions.<\/p>\n

They\u2019re the most respectable and credible of the forecasters, but there are plenty of others out there making confident claims.<\/p>\n

What do we make of all those other \u2018experts\u2019 who fill the airwaves with their predictions?<\/p>\n

If they have skin in the game, we need to have an active bulls#!t antenna, particularly if they are forecasting a \u201cgrowth area\u201d.<\/p>\n

New infrastructure,\u00a0subdivisions<\/a>\u00a0and building commencements do not automatically equate to capital growth for individuals. This is forecasting as a marketing activity.<\/p>\n

What\u2019s missing from the forecasts?<\/strong><\/h2>\n

The problem with forecasting is that there needs to be some element of predictability in the factors upon which the forecasts are based. We haven\u2019t had predictable market conditions since we started writing these reports.<\/p>\n

Even before Covid, we had a Royal Commission into banking and a \u201cmiracle\u201d federal election win for the Coalition that created havoc with forecasts. In 2022 we had a war in Ukraine and unexpectedly high inflation.<\/p>\n

The forecasting models employed by economists don\u2019t do a great job of\u00a0anticipating unprecedented events<\/a>\u00a0that impact the property market, so it should come as no surprise that they keep getting it wrong. That and the apparent lack of consideration of behavioural economics. Residential real estate is, after all, about people, not bricks and mortar, and it\u2019s naive to assume that people behave rationally, especially with something as emotive as their home.<\/p>\n

When we worked through the 2022 predictions in chronological order, we uncovered a very large clue as to why most of the forecasts were wrong. The RBA got their inflation forecasts wrong, this led to their interest rate forecasts being wrong, which led to anybody using these as a basis for their property price forecasts to, you guessed it, get it wrong.<\/p>\n

Bias in forecasting<\/strong><\/h2>\n

There are behavioural biases that affect forecasters and those who believe them. Overconfidence is a behavioural bias that applies to experts more than laypeople. This can lead experts to continue to back themselves and confidently assert their views even when they keep getting it wrong!<\/p>\n

The media rarely refers to the track records of the experts<\/a>\u00a0quoted in their stories and it probably doesn\u2019t occur to most of their audiences to check.<\/p>\n

What seems to be playing out is a phenomenon called authority bias, whereby the audience defers to those in high powered jobs (think, bank economist).<\/p>\n

This bias also creates a type of halo effect. If they\u2019re an expert in one area, they must be an expert in other areas too!<\/p>\n

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Savvy move scores teacher three investment properties<\/a><\/h2>\n<\/header>\n<\/div>\n

I really don\u2019t think many of them know much about property market dynamics at a buyer and seller level. This is why they didn\u2019t anticipate the owner-occupier led boom of 2021.<\/p>\n

And if the media won\u2019t hold them to account, we consumers are prime candidates to fall prey to the availability bias, whereby we favour information that\u2019s readily available rather than seeking deeper insights. Maybe we\u2019re just plain lazy and that\u2019s why we take them at face value instead of challenging them.<\/p>\n

Did anybody get it right?<\/strong><\/h2>\n

In January 2022, out of 26 economists who made interest rate predictions, nine expected rates to rise in 2022 and only three thought they\u2019d rise before the middle of the year. That\u2019s an 11.5 per cent strike rate.<\/p>\n

Out of 24 economists who made property price predictions at that same time, only three anticipated falls in 2022. That\u2019s a strike rate of 12.5 per cent – hardly reliable.<\/p>\n

After the first rate hike in May, we were greeted with a rash of revised predictions of rate rises and price falls. Sure, the forecasters generally got that right, halfway through the year but do they let you place bets on a horse race once the horses have left the gates?<\/p>\n

\"Selling<\/a><\/div>\n
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TV real estate guru, Selling Houses Australia\u2019s Andrew Winter becomes a buyer\u2019s agent | WATCH<\/a><\/h2>\n<\/header>\n<\/div>\n

In our complex world, where the main thing we can rely upon with any certainty is uncertainty, perhaps it\u2019s unfair to expect anybody to be able to make accurate predictions. If we can accept that, then perhaps experts need to stop sending press releases, because we all know the temptation of a sensational headline.<\/p>\n

As we try to anticipate the unexpected, inevitably something even more unexpected happens. It\u2019s just impossible to get right.<\/p>\n

Take these predictions as directional at best. Anybody basing their individual decision on a property forecast is missing the point. This information isn\u2019t meant specifically for you.<\/p>\n

You can download the full report and find out exactly who got a gold star (and who got a \u201cD\u201d)\u00a0reading the full report here<\/a>.<\/p>\n

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Collapse of major builder devastates Australian home-owners | WATCH<\/a><\/h2>\n<\/header>\n<\/div>\n

MOST POPULAR IN NEW ZEALAND<\/span><\/h3>\n