OPINION: Housing economic forecasts are forecasts - not guarantees

The one thing the public is not shortchanged on is forecasts as to where residential house prices are heading.

Rarely a week will pass without media commentary quoting economists as to where house prices are heading in the next few months or years, and more often than not the latest forecast will be contradictory to that which appeared a week previously.

Let me state up front, my comments in this article are not intended to be critical of economic forecasters. Theirs is an extremely challenging task combining bringing together all the economic inputs that impact on prices, overlaying the independent actions of human beings who are making long-term decisions about their housing needs or investment intentions and accommodating totally unpredictable events such as Covid.

What I am aiming to do is to apply some common sense to the plethora of forecasts that confront the public about where house prices are heading.

The simple fact is that since mid-2020 – for close on three years – all the major forecasters have been getting their housing predictions wrong.

This is not my assertion. I’m merely reporting what the Reserve Bank itself is stating.

In its November 2022 Bulletin Evaluating the Reserve Bank’s forecasting performance the Bank summed up its own performance in relation to housing price forecasts as follows:

All forecasters missed the extent of house price growth over the COVID-19 pandemic period.

Similar [to] the Reserve Bank’s expectations at the time, the private banks projected house price deflation at the outset of the COVID-19 pandemic. On the back of too pessimistic expectations for GDP growth and the labour market, this is not a surprise. However, structural factors – like urban planning rules and land use restrictions – have also played a role.

Overall, all house price growth forecasts have been quite similar, and have lagged behind strong house price inflation outcomes since the second half of 2020.

In plain language, the Reserve Bank is saying “we got it wrong, and so did the trading banks”.

So, by all means, the public should continue to take heed of what the Reserve Bank and the trading banks are forecasting, but remember, forecasting is an educated analysis, and an honestly held opinion, but they are just that.

What they say will happen is not guaranteed to happen.

In my opinion people who are trying to understand where house prices are heading need to also factor in actual prices, and this information is readily available to the public on the Real Estate Institute’s web site.

Each month, the Institute publishes a report that runs to more than 60 pages giving national and regional data, covering prices, sales numbers and number of days to sell, as well as detailed commentary. It is available online, with the report for the previous month going live mid-month.

Armed with this information, and specific information a real estate agent can give vendors in relation to prices of property recently sold within a 2- or 3-kilometer radius of their property, the vendor can make an informed decision as to the likely sale price of their house.

The vendor can make a decision whether to share this ‘local price’ information with potential buyers. If they don’t, the buyer has access to various independent sources that can replicate the analysis for a fee.

For those who want an even earlier heads-up in relation to Auckland prices, by the second working day of each month Barfoot & Thompson publishes our sales data on our website www.barfoot.co.nz/news.

As we invariably sell 40 percent of all Auckland homes sold each month, our data gives a fair indication as to what has happened to prices Auckland wide.