Australian Property News
Why predicting the market can be tricky
Posted on Tuesday, March 02 2010 at 10:04 AM
Making short-term and long-term predictions about the property market can be reasonably easy but it's a different story with what happens in the middle, according to Metropole Property Investment Strategists director Michael Yardney.
He says it's easy to understand what's going to happen in the next year – for example, it's likely prices will be driven by fundamentals such as scarcity, relatively low interest rates, high consumer confidence and fear that people will miss out.
Likewise, it's easy to predict what will happen in 10 years – that is, property prices are likely to double.
"But we can comfortably say we don't know what's going to happen in 2011 and 2012," he says.
"The bottom line is that property is a long-term play."
Yardney points out that in many cases experts get the predictions wrong.
He says often the people predicting what will happen in the property market are economists and analysts coming from a sharemarket perspective and they're treating property much the same as they treat shares.
He says they give a broad-brush opinion of what will happen to the property market but it doesn't work that way, because property markets are different everywhere.
"The ones that understand what's happening are the ones on the ground and hearing what buyers and sellers are thinking and what's going on," he says.
"That's compared to economists looking at numbers and historical information."
Yardney points out that economists were worried that the global financial crisis, along with poor market sentiment, would mean house prices would drop 30 per cent or 40 per cent, but he says that wasn't going to be the case because the property market is much more stable than shares.
"People don't sell their homes when the news is bad, but they will sell up their shares," he says.
He says economists forgot that 70 per cent of the population owns their home and of those, 50 per cent have no mortgage on their home, so they're not fussed about whether property prices go up or down, whether the economy is doing well and what interest rates are doing.
"One third of people that own properties have no interest in that and that stabilises our market," he says.
"So while I look for economic information and reports for historic data I find most predictions of capital growth very unreliable."
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