Forecasters, prognosticators, pundits, analysts and others of their ilk are able to predict the future — or so they would have real estate professionals and the home-buying and home-selling public believe. It’s bunk, of course.
A look back at housing market forecasts over the last five or six years makes the point. Forecasters consistently under-estimated the strength of the housing boom and predicted year after year that the housing markets were headed into a period of fewer sales. That prediction may be realized this year, yet any forecast can come true eventually if the time horizon is long enough, particularly when a market is known to have been cyclical in the past.
It’s difficult to assess the accuracy of housing market forecasts in hindsight because they tend to be presented as moving targets that are adjusted month after month in a determined effort to get closer to the right number before the year ends. Rolling forecasts and annualized sales figures obscure the extent to which the forecasts miss the mark by, say, plus or minus half-a-million home sales a year, for instance.
Forecasts can’t be consistently correct because there are too many variables involved along with elements of chance and randomness inherent in the universe. Natural disasters like earthquakes or hurricanes can’t be predicted; nor can man-made catastrophes like terrorist attacks, and even if disasters or catastrophes could be predicted, their effects on the housing market would be unpredictable. Few forecasts consider local anomalies or psychological factors like herd mentality, which can’t be converted into quantifiable data. Correlations and patterns that occurred in the past don’t always repeat themselves in the future.
Forecasts aren’t benign because they perpetuate the fiction that it is possible for experts (or indeed anyone else) to predict the future. Years ago, change came slowly enough so that business professionals could make plans and modify them gradually to adapt to trends in the marketplace. But today, change comes so rapidly that fixed plans can take a business very quickly a long way in the wrong direction. Any plan that relies too heavily on a forecast is a considerable risk.
Housing market forecasts could be more useful if they identified very specific trends that might continue, though there usually is an unexpected turning point in any trend line. They also could suggest various possible scenarios, point out opportunities and help people plan for uncertainty. Forecasts should encourage people to think ahead about what might happen and how they could prepare to make the best of whatever occurs.
Rather than using macroeconomic forecasts to anticipate microeconomic futures, real estate professionals should exercise common sense and consider their own local market knowledge, perhaps supplemented by the views of forecasters. Contingency plans for best-case, most likely case and worst-case scenarios are a must, while plans that imagine even wildly outrageous possibilities are a good way to allow innovation and new ideas to flourish. Open-mindedness breeds flexibility at need.
Marcie Geffner is a real estate reporter in Los Angeles.
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