Caught with their pants down
Experts who are claiming that the property market will not be affected by the current crisis will soon be caught with their pants down. Why? Because they’re looking at the wrong numbers.
One of the main reasons that so many experts “get it wrong” when making property market forecasts is because they rely on data which tells us all about what has already taken place, but nothing about what is likely to occur.
That’s what some of them are doing right now, claiming that the latest published data shows the property market’s ‘resilience’, even that prices are ‘buoyant’ – but their data is pre-COVID.
Current sale price data refers to events that occurred months ago
The latest sale price data seems to show us that housing prices have remained stable during the current crisis, prompting some experts to predict that they won’t fall at all.
But this data refers to sales that occurred several months ago, because there’s a long time lag that takes place before sales turn into published sales results.
This timeline image shows how properties take months to sell. First, negotiations about the sale price, deposit amount and settlement terms are concluded, followed by the exchange of contracts and then settlement. The sales data is collected by government agencies who then on-sell it to data providers. They in turn collate and finally publish the sales information. The entire process can take anything from a few to five or more months to complete.
That’s why the latest sale price figures can at best only summarise events that occurred months ago. They can’t even tell us about the present, let alone the future. So, be very wary when experts talk up a market based purely on published sales and price data, which some of them do quite often.
Historical data misleads us when market conditions change
Using published housing price data is fine when both sales and published data are trending the same way, but it can totally mislead us if market conditions suddenly change, as they have recently.
Right now, the number of property sales is falling rapidly, but any drop in sale prices won’t show up in the published figures for some months.
The graph explains how this works, with sales shown in red and the resulting published price data shown in blue.
The black circle reveals where we are right now with sales falling, but published prices still risng.
The graph shows that the current fall in sales can have only one outcome – lower published prices in the near future.
The good news is that when buyer demand picks up again, hopefully not too far away, increased sales will follow and then prices will rise..
This is why those experts who are now claiming that property prices will be unaffected by the current crisis will soon be caught with their pants down.