Some more doomsday scenarios this week. Forecasting is an impossible science, but that doesn’t stop people having a go. So go on, entertain us.
There’s a few big calls doing the rounds at the moment. Labor’s negative gearing reform will knock 10% off house prices. NAB is out there saying they’re expecting house price growth of 1% this year. My mate reckons Collingwood is in with a shot for the flag.
NAB’s 1% sounds respectable and serious, but given recent history it’s a pretty wild forecast. It’s a big call.
Ultimately though, these forecasts are a waste of time. There’s some interesting stories going on there – the reasons for the forecasts can draw out some interesting trends, but the actual numbers themselves? Forget it. Almost a total waste of time.
I mean, let’s have a look at what the “experts” were predicting for 2015 and see how they did.
(I’m not doing this to be cruel – just to make a point about getting too hung up on the individual numbers.)
Just to remember, the combined capitals grew a touch over 8% last year. Sydney and Melbourne broke 11%, Brisbane and the GC were up 4.5%, Adelaide was flat and Perth was down 4%. This is all according to RP Data, though if you don’t like these particular numbers there are others you can go to.
Anyway, here are the results:
- SQM around the money
Of all the experts, Louis Christopher from SQM Research had the best year. He correctly tipped capital city house prices to rise between 7 and 12 percent over the year and also got it right on the two biggest housing markets, forecasting Sydney house prices to rise between 11 and 15 percent and 7 to 13 percent in Melbourne.
So not bad. But he was too bullish on Perth (growth of 2-5 percent) and Brisbane (7-11 percent).
- Domain Group is way off
Domain Group's prediction that houses would track inflation (about 2%) looks a little silly now. Dr Andrew Wilson was a touch pessimistic about the effect weaker economic conditions would have (quick, sign him up for a seminar or something.)
- Fitch rates poorly
Credit rating agency Fitch was way out on its 2015 forecast of 4%. That’s a concern since they’re charged with estimating risk in the financial sector.
- CoreLogic RP-Data all muddled
These guys expected growth in Sydney and Melbourne to slow, and for Brisbane to lead the capitals. That’s pretty much exactly what didn’t happen.
- John McGrath misses Sydney surge
Real Estate big-wig John McGrath was too downbeat on Sydney at the start of 2015, expecting it to slow, “but not go backwards.” He was around the money in predicting a solid year for Queensland though.
Anyway, I’m not trying to be some Monday-morning commentator here. And I’m not saying I could have done better. Some markets did what I thought they would, some didn’t.
The point is that at any point in time, there is always a wide-range of forecasts. If you were to throw all these forecasts in together you would have concluded that in 2015 Sydney was likely to grow between 1 and 15%.
And the truth of it is that over shorter time horizons, like a year, these kinds of numbers are almost impossible to hit. There’s just too many things that can get in there and muck up the results.
You might get a couple of big sales in a suburb, or there’s some kind of natural disaster. Who knows. You can get anything.
So why do people bother?
Well, it’s all about the news cycle. People have got to say something. The media wants to have a piece of news, and a number is news.
And the thing that you’ve got to remember is that forecasters are primarily part of a PR machine.
Think about the chief economist at NAB. He really has two jobs. One is to produce forecasts that his trading floor and the rest of the organisation can use to set up positions and plan for the year ahead.
What those forecasts are is anybody’s guess.
The second job he has is to get NAB in the news. Just get the banks name in the paper. Reinforce the idea that they’re the experts.
“See? I’ve got a number.”
Here truth is almost irrelevant. He wants to come up with the most newsworthy number he can, without making the organisation look ridiculous.
But that actually gives you a lot of room to move. Because almost no one remembers what anyone was saying a year ago. And even if you get it way wrong, you can always tell some story about people responding unexpectedly well to the new government, or fears around emerging markets, or the shortage of donuts in Sydney or whatever…
- Melbourne: 9.5% Growth
- Sydney: 6% Growth
- Brisbane: 5.5% Growth
- Adelaide: 3.5% Growth
- Hobart: 3.5% Growth
- Perth: 1% Growth
Now here’s the rub. There is likely to be No B.S. followers or readers who live in Perth and will make a killing in that market. In fact, if you want to find a market that doesn’t have buyers crawling all over the place, then that’s where I’d be looking.
However, you can make 10-30%, maybe even more in any of the above markets if you’re a skilled, educated property investor. Personally, I’ve got several deals on the table, and the lowest equity return is 25%.
The other thing to consider, and this is to do with a bigger picture of where we are in the cycle… Anytime soon, we’re likely to have a bit of a serious slow-down. Maybe even a recession… Remember those?
That may happen in 12-24 months time.
For you and me, it’ll be a massive buying opportunity to seriously load up.
Because we’ll be at the half-way point of a much, much larger cycle, which is likely to top out around 2025 – 2028.
So what am I doing? I’m not selling anything, closely following the data and statistics, and staying invested at least for another 8 – 10 years.
Then I’m out.
What about you?
What’s your short-term view and what’s your long-term perspective?