Now, just in the last couple of weeks, ANZ Bank has published its latest forecast for the future of property prices this year and next year, and it’s a fairly negative prediction. It expects property prices to fall 8% across Australia this year and another 9% next year. It is also expecting more significant falls in Sydney and Melbourne, as well as in Brisbane, Perth, and Adelaide. At the same time, Westpac has also published its latest forecast for property prices, and it’s predicting the next 12 months, we’re going to see an 18% decline in house prices in the two biggest cities, Sydney and Melbourne. Now, Commonwealth Bank has also published its latest forecast; Gareth Aird, the head of Australian Economics, has said that they expect house prices across Australia to fall about 15% between now and the middle of next year.
In considering whether we should be giving these forecasts any credibility and whether we should be particularly concerned about the future of property prices in Australia, let’s assume the recent track record of some of these individuals and organisations in predicting the outcome of the Australian property market. In March-April 2020, many people published forecasts because we had recently seen the arrival in Australia of COVID-19 and the dramatic impact it would have on the Australian economy and property markets. We started to see some fairly dire negative forecasts about the future of property prices around about March-April 2020.
ANZ Bank Felicity Emmett and Adelaide Timbrell, who recently had their forecasts for this year published, a couple of years ago, a forecast that Australian capital city prices were going to fall by up to 13% in 2020 in the wake of the arrival of the pandemic in Australia. Shane Oliver, IMP Capital’s chief economist, is often in the media with his forecasts; what’s going to happen, he says with property prices; he was predicting the property prices would fall 20% in 2020, in the wake of the arrival of the pandemic. Louis Christopher from SQN Research thought it was possible that prices in Sydney and Melbourne could fall as much as 30% from the peak. Gareth Aird, Commonwealth Bank Head of Economics, forecasted various scenarios. The best-case scenario was that property prices in Australia would fall 11% in 2020, and the worst-case scenario was 32%.
Can you imagine that? A third of the value of our homes being wiped off. That was the prediction from the Commonwealth Bank, our biggest home lender. National Australia Bank was a little bit more moderate, but its forecast was extremely negative; soon, prices to fall 10 to 15% in the next 12 months, and therefore a cast made in April 2020 was that by the end of 2021, property prices would have fallen 30% across Australia.
Bill Evans from Westpac expected prices to drop 10% in the next 12 months. UBS, a bank that often makes very negative forecasts for the residential property market in Australia, their prediction; a fall of 20% in the next 12 months. Martin North, probably the most stridently negative critic of the housing market in Australia from Digital Finance Analytics, his forecast was that there was a 60% chance that house prices would fall by 30% to 45% in 2022 through high unemployment.
Can you imagine almost half the value of house prices wiped out in one year alone according to that forecast in the wake of the arrival of COVID-19 in Australia?
Let’s compare those rather dire and pessimistic forecasts for property prices in Australia in 2020 with the actual outcomes. What happened, according to CoreLogic and Domain, with the figures that they published in January 2021, was that national prices rose 6%. Sydney was up 7%, Canberra 9%, Hobart, Darwin, and regional Tasmania; all rose 12%.
We had some locations in Australia with double-digit increases in their property prices in a year in which all those prominent, supposedly credible commentators and economists predicted that we would have declines in property prices anywhere between 10 and 30%, and then the most extreme scenario 45%.
Some people got it right. People specialising in real estate analysis, such as Simon Pressley, Propertyology, correctly forecast that we would move into a national property boom in 2020. James Simon from Aussie predicted that Australia would move into an upcycle, not a period of price decline. Fast forward to the beginning of 2020, and the usual suspects were back again with their forecasts for what would happen for property prices in the year. Most of them got the message that prices are rising, not falling, so they made their forecast for 2021.
Together, ANZ Felicity Emmett and Adelaide Timbrell forecast that house prices will rise about 9% on average, although slightly less in Melbourne and Sydney in 2021. Alan Oster of National Australia Bank, their chief economist, predicted house prices in the capital cities would rise just 5% in 2021, but Melbourne and Sydney would be less than that. 3.6% in Melbourne, and 4.4% in Sydney, according to his prediction. Gareth Aird, Head of Economics at Commonwealth Bank, his forecast was for house prices to rise 8% and unit prices just 5% in 2021. Shane Oliver, Chief Economist at AMP Capital, was back again with a forecast that house prices in Australia would rise 5% in 2021. Bill Evans from Westpac said just 4%. Louis Christopher from SQM Research had a range of scenarios ranging from a 5% increase in property prices to a 9% increase in 2021. Tim Lewis from CoreLogic, often in the media, forecasts prices would rise between 7 and 10%, although less in Sydney and Melbourne. Again, UBS forecasts prices to rise between 5 and 10% in 2021.
What happened in the light of all those forecasts with most people, the usual suspects forecasting rises of 5, 7, maybe 10% in property prices in 2021. Nationally, they rose 25%. Sydney was up 30%, Brisbane, Hobart, Canberra, and Adelaide were up 26-27%, and many regional markets also had tremendous growth. Regional Queensland, 26% rise; regional Tasmania, 29%; and regional New South Wales, 31%.
None of those forecasters, the senior economists for our central banks, Shane Oliver, AMP Capital, or all the usual suspects saw the property boom coming. Instead, they predicted increases of 5-6-7 per cent, and we got one of Australia’s biggest property booms.
I would have to ask, how good are they at what they do? How good are their property forecasting skills? Not very good, I’d suggest. Remember, next time you see another headline and mainstream media saying property prices will crash. They’re going to drop 15% in the next 12 months or 20% or 25%.
In some of the more extreme cases, journalists have given enormous credibility to the forecast made by the usual suspects, notwithstanding their pretty terrible track record, as evidenced by the outcomes compared to their projections over the past two or three years. Keep it in mind, and I would suggest you disregard their forecast because they don’t get it right all the time.
Sources:
https://www.youtube.com/watch?v=L3FebEIdqR0
Terry Rider
https://www.hotspotting.com.au/
