Experts keep getting it wrong: Image Unsplash
  • Housing market predictions often overlook diverse driving factors
  • Different regions possess unique market sensitivities and drivers
  • Long-term trends and demographic changes heavily influence housing markets

After property prices across the country surged during the low-interest rate Covid environment and then fell away as rates rose, many experts have continued to get the price predictions wrong.

Ray White Chief Economist, Nerida Conisbee, said there are several reasons the experts keep missing the mark and prices keep rising; forecasters often assume that house price movements are consistently driven by the same things.

“House prices are more sensitive to some things than others,” said Conisbee.

“There is a tendency to overemphasise one factor over another.

“In the most recent cycle, the main thing that many got wrong was putting an over emphasis on interest rate changes but ignoring housing shortages and population growth.”

Nerida Conisbee, Ray White Chief Economist

Different factors at play

Conisbee said it is also a mistake to assume that what drove prices up will also push them back down.

“During the pandemic, Australia lost people to overseas and population growth was very low.”

“At the same time, prices increased dramatically primarily because the cost of finance was so cheap and people weren’t spending as much on other things.

She said as interest rates started to rise, many assumed that prices would move back in the exact same direction.

“While this happened a bit, the bounce back in population growth prevented a dramatic fall.”

Multiple housing markets

Housing markets across the country are not created equally. They vary from state to state, city to city, and can even be whittled down to as minor a detail as a new cafe or bus stop.

“Different markets have different drivers. Cities like Perth are more sensitive to the commodities cycles, whereas Melbourne and Sydney move much more closely with interest rates,” said Conisbee.

“Head to small regional towns and the addition of a new employer or a strong agricultural year can make a difference. At a very localised level, a new cafe or new form of public transport can drive up prices.”

Coinsbee also said that housing markets aren’t typically as volatile as the stock market.

“The cost of transacting and the speed of sale and settlement make housing a far less volatile investment to easily traded shares.

“This makes house prices far less volatile to a change in conditions.

“Financial factors do drive housing markets but demographic change is also a factor.

“In fact, many changes to property markets beyond residential are heavily influenced by changes to the way people live and work.”

Nerida Conisbee – Image: Supplied

Cut costs first

She said that for most people selling the family home is a big deal and people will typically cut back on other areas prior to selling their property.

“A simple model utilising population growth, number of dwellings and cost of finance will ignore a lot of what drives consumers when buying and selling homes.

“This cycle, many investors have not sold because rents have increased, helping with mortgage payments.”

Conisbee said that it’s also important to look at the long-term trends.

“The pandemic led to the highest movement to regional areas ever recorded, leading many to believe that regional pricing would come back down quickly as pandemic restrictions faded.”

“This hasn’t happened and reflects that this regional movement was already happening prior to the pandemic.

“It also reflects that it wasn’t just pandemic movement that led to price rises but a strong performance in mining and agriculture.”

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