House price panic: How inaccurate forecasts instil anxiety

Navigating rising interest rates is a new experience for many mortgage brokers. Among the varying challenges is the stark reality that we are the people our customers turn to in times of confusion and need.

What we know from the past is that rising interest rates are generally accompanied with a negative outlook on dwelling prices. This manifests into either lost confidence in the market or home buyers deferring their buying decisions in the hope of picking the bottom of the market.

But, I’m not the least concerned about forecasts of falling dwelling prices, as housing forecasts have been inaccurate for decades.

Unfortunately, “doomsdayers” create unnecessary stress and anxiety for borrowers and home buyers, who out of fear may defer their purchasing decisions to their financial detriment. Meanwhile, dwelling prices may actually increase while borrowing capacities decrease — a sad financial outcome for home buyers.

Economists’ data-driven predictions on market downturns have historically forecasted much larger and longer market declines than what has ever occurred. Dwelling price forecasters are always wrong — yes that’s right, always!

Two years ago (May 2020), all four major banks estimated an 11 per cent dip in dwelling prices for the period between June 2020 to June 2021, and prices ended up rising 21.5 per cent. They missed the margin by 32 per cent!

Similar occurrences took place during the global financial crisis (GFC).

Today’s key economic indicators fare better than what we saw during the GFC and at the height of the pandemic. Given dwelling prices during both these events made a mockery of expert forecasts, one can logically mount an argument for them to do so again.

Even off the back of “doomsday” media headlines and throughout the cold, dark and gloomy months between May and July 2022, Australian dwelling prices only fell 1.3 per cent, according to CoreLogic research.

We are seeing a split between some states and territories, with some regions continuing to increase while others fall.

High employment remains steady and history indicates that housing demand is driven by employment security. Last month (July 2022), Australian borders welcomed back skilled migrants and students without vaccination requirements.

The four major banks are forecasting a dwelling price fall of up to 17 per cent through to December 2023, but history has shown that these predictions are not reliable.

Many of the “doomsdayers” are intelligent people who work with complex modelling and data science but they often fail to recognise the basic concepts associated with supply and demand.

They do however understand that “doomsday” forecasts attract front-page press with no accountability and, seemingly, no responsibility for the impact they have on the market and individual home buyers.

Borrowers can take comfort in knowing that as long as they continue to meet their mortgage repayments, housing is still a medium to long-term asset and any downward impacts on the value of their home should not be dwelled upon.

Within this sea of confusion, it’s crucial for mortgage brokers to position themselves as beacons of light. Brokers need to be proactive in exploring ways to support their customers in reducing their monthly loan commitments as well as their living expenses.

My advice for brokers when discussing house prices and interest rates with clients?

• Stay educated and know the facts about what’s actually going on in the market; particularly what’s occurring month-to-month in your capital city or regional centre.
• Perspective is crucial when talking about current month changes in interest rates and dwelling prices.
• Understand that forecasters have historically been very wrong when it comes to predicting downturns in dwelling prices.
• Be the beacon that guides your customers through the sea of fear and misinformation.

Although these times can be challenging, they also present an opportunity for great mortgage brokers to rise to the top and provide comfort to their customers by addressing their anxieties and concerns.