I am quite interested about how a forecast is made. I like to understand the thinking behind the prediction. I am particularly fascinated when a very definite outlook has been supplied.
Sadly – although not that surprising – property forecasts are often very definite but lack when it comes to the reasoning behind such a prediction.
Too often forecasts are made by relying on the past. Most, if not all, look at the future in the context of previous experiences, rather than through the trends that are shaping what lies ahead.
I am not saying that I have the answers. I spend a lot of my time these days saying, “I don’t know”.
But I do use three ‘tools’ to help assess what the future may hold when it comes to the residential market. These work for me and they might work for you too. They cover three time periods – now, soon and later.
Now
Property at the coalface is all about supply and demand. The interplay between the two determine short-term (next 2 to 3 years) property performance i.e. price or rental growth. In Brisbane, for example, dwellings sales volumes are currently declining whilst the amount of stock for sale is increasing. Yet some are prophesising a short-term housing boom?
Soon
Here I like to think about three factors – cyclical influences, structural changes and what I call the ‘X factor’. The time frame in question here is typically 3 to 5 years.
Cyclical things include confidence, interest rates, population growth and employment to name a few. Structural changes involve taxation/charges, urban planning (such as urban growth boundaries and regional plans), government handouts (i.e. FHOG) or rules (i.e. FIRB).
And there is always a X factor. Think: the Brisbane Flood in 2011 which interrupted the local housing recovery at the time or overseas buying (much of it illegal) in Sydney and Melbourne, which helped fuel their recent price bubbles.
Looking forward a possible X factor is a Labor win at the next federal election.
Later
Here I am talking about the next decade or two. For mine, more time should be spent thinking about this timeframe rather than trying to score a short-term sugar hit or avoid a bout of housing depression.
I like to use three ‘thought’ bubbles here: economic, political and social. They are often in lockstep and in a tighter bearhug that most realise. And, for mine, the economic, political and even social conditions looking forward are very different from the past.
In the next decade (maybe longer) there are very few trends that will drive housing prices and rents generically up, and heaps more that will keep them flat at best, but mostly lead to declines in real terms.
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