Terry’s View: Not All Experts Are Equal
There are two defining characteristics among the nation’s “leading” economists: (1) they are hopeless at forecasting residential property markets; and (2) they refuse to learn from their mistakes.
In 2023 economists predicted prices to fall, but instead they rose and they dismissed the outcome as an aberration which “surprised everyone”. Then they keep using the same flawed methodology and are predicting price falls in 2024 because of the impact of rising interest rates.
A year ago, most economists tipped prices to fall at least 15% because of rising interest rates. Instead there were price rises averaging 8.6% for houses and 6.4% for apartments (CoreLogic figures). Several cities and regional markets had annual price rises above 10%.
The key lesson from 2023 is that there are forces more powerful than interest rates impacting property markets. The most important being shortage. There continues to be strong demand in the market at a time of under-supply, destined to get worse in 2024.
The theory that rising interest rates means falling prices, is not based on historical evidence. In my four decades of researching and writing about the housing market, I’ve never seen a period when rising rates caused prices to collapse. Some of the nation’s most notable property booms have occurred during times of high and rising interest rates including the late 1980s and last year.
But economists are forecasting price weakness in 2024 “as higher interest rates bite”. The RBA started lifting the official interest rate in May 2022 and there have been multiple increases since then. Higher interest rates didn’t “bite” in 2023 but apparently, they will “bite” in 2024.
Sadly, that’s all the nation’s high-profile economists have to offer. Their understanding of real estate dynamics is desperately thin, and they will continue to be proven wrong with their forecasts.
