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The So-Called Economists Are At It Again

The So-Called Economists Are At It Again


A recent headline in the Australian Financial Review newspaper summed up why most of the property price forecasts published in mainstream media are hopelessly inaccurate.

The Fin Review headline declared “house price growth to slow as interest rates bite”, following a survey of economists by the newspaper.

Th survey of 30 economists came up with a median predicted rise in house prices nationwide of just 2.5%, with eight respondents forecasting a decline in property values.

The first error is that the Financial Review, which should know better, has sought expert property analysis from people who are not property specialists and certainly not experts on real estate matters.

The next mistake is the one that economists seem destined to make year after year – the belief that the biggest factor, indeed the only factor, which determines house price outcomes is interest rates.

The error is compounded by the belief that interest rates, which did not “bite” in 2023, would suddenly turn around and “bite” in 2024 – even though it’s likely that there will be no further rises by the Reserve Bank and the next movement in the official rate is likely to be downwards.

The inability of economists to understand that their methodology is flawed, and that they need to change, is quite remarkable.

Even more remarkable is the persistence with which newspapers seek real estate forecasts from people whose track records in predicting house prices is so bad it’s embarrassing

So the Financial Review would have us believe that property prices will be subdued because interest rates, which failed to impact throughout last year, will mysteriously impact in 2024.

Barrenjoey chief economist Jo Masters is tipping 4.8% growth nationally, but with Sydney house prices up just 3.8%  and Melbourne up 3.2%.

Oxford Economics’ senior economist Maree Kilroy is tipping a 2.7% gain in 2024.

Jarden’s Carlos Cacho expects prices to rise 5% nationally.

Australian National University associate professor Ben Phillips expects a “sluggish 2024” for property prices, tipping 4% nationally, but only 3% for Sydney, Melbourne and Canberra.

But for truly misguided forecasting, there’s nowhere better to go than to AMP chief economist Shane Oliver.

Oliver, who has a long track record of inaccurate property forecasts, says he expects house prices to fall 3–5 per cent this year, but with rate cuts providing relief in the second half.

In other words, it’s all about interest rates, even though the results of 2023 proved that it isn’t.

Nicola Powell, chief of research and economics at property website Domain and therefore more of a property specialist than those institutional boffins, is more bullish and tips 6-8% increases in house prices.

Ray White chief economist Nerida Conisbee, also a property specialist, is also optimistic and expects price rises this year could exceed the gains of 2023, which averaged around 8%.

Conisbee says: “The main reason is that many of the drivers of price growth this year continue to be in place, particularly low levels of housing supply. In addition, it is increasingly looking like we will see a rate cut in the first half of 2024. This will further fuel pricing.”

The record shows that specialist real estate analysts are far more likely to get it right with their property price forecasts than economists working for the big banks and other institutions.

Fulltime real estate analysts have some claim to being experts, while economists do not – and the proof of that is in the results of recent years.



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