From early to mid-2020, headlines warned of a bloodbath on property as economists at major banks forecast double-digit slowdowns as an economic consequence of the coronavirus pandemic. Now that the virus appears to be overdue, communities around the world are bracing for post-pandemic economic reconstruction. A number of real estate commentators have recently emerged from the woodwork to rejoice at how wrong the wrongs were.
There is no doubt that some criminals deserve a little perspective, maybe even a ridiculous one. In particular, those who continually predicted fixes and drops that made headlines throughout their careers as real estate prices doubled, tripled and quadrupled in Australia and many parts of the world. world. This is not the case with all of the so-called apocalyptics of 2020, however. News was moving so rapidly during this time period that I found my own comment to sound dated by the time I got it. had submitted to the editor. This undoubtedly applied to anyone trying to make sense of a rapidly changing economic and regulatory landscape. I'm glad my predictions turned out to be correct, but if you believe someone who says they know exactly what was going to happen, I have a bridge to sell you.
You will find that people who were trying to make sense of the fallout throughout 2020 were doing so in two ways:
Generate many hypothetical short-term future scenarios (eg unemployment rate, mortgage default, GDP growth, etc.) and make predictions based on these hypothetical scenarios.
Invent on the spot based on what they had read, heard, felt or wanted.
One of these scenario models included the Commonwealth Bank of Australia (CBA) forecast of a 32% drop in the house price index from March 2020 to March 2023. This was discussed at length by the media shortly after the CBA's Trading Update was presented in May, but little reference is made to the other comments provided by the ABC at the time. For example, the 32% drop was their 'prolonged downturn' scenario conditional on an average unemployment rate of 9% in calendar year 2020 and an average unemployment rate of 8.5% for the year 2020. calendar year 2021. According to ABS data, Australia's seasonally adjusted unemployment rate peaked at 7.5% in July. Additionally, data from Seek indicates that the gap between the pandemic era and the pre-pandemic era is narrowing, which is good news for the unemployment rate of 2021. CoreLogic pointed out earlier in the year than in the case of the coronavirus pandemic, the impact of unemployment on the real estate market was determined by people who were disproportionately unemployed (tenants working in the hospitality industry , tourism, etc.)
So was the ABC naïve to predict such negative impacts on the House Price Index? No.
As can be seen (or heard) in their May presentation, the ABC (and the rest of the world) were operating in an uncertain environment. No one knew how long it would take for a vaccine to be widely available and even the government did not know what future policy responses to the pandemic would look like. In addition, the ABC's scenarios were designed to fund their balance sheet, not to influence the real estate investment debate. Similar caveats should be kept in mind with other models, such as those from other lenders and research houses.
The tendency of their critics to miss the link between cause and effect adds to the complexity of the role of the doomsayer 2020 forecast. Consider this: As coronavirus cases began their winter recovery in Europe, experts have issued their warnings and countries have taken extra precautions to prevent the infection rate from rising exponentially. Shortly thereafter, some people said these precautions were reckless as the second wave was nowhere near as bad as the experts had predicted. Many people failed to understand the basic logic that the precautions themselves had prevented an out of control second wave. Frustrating, right? Well, these logical errors exist everywhere. Why have an army in peacetime? Because the army is a deterrent for potential invaders. Why continue to eat well if you're never sick? Because your diet contributes to your health.
The same goes for our institutions sharing worst-case models.
Some of Australia's most important institutions have made dire predictions about the pandemic-induced slowdown, both in real estate and in the economy in general. In many cases, these forecasts have informed both corporate and government policy to prevent such scenarios from occurring. It's very possible that without the mortgage holidays, the JobKeeper payment, the RBA rate cuts, vaccine pre-purchases and a litany of other initiatives, these worst-case scenarios would have happened. In other words, some of the doomsday predictions (with the notable exception of the perpetual Chicken Little) actually hit their mark perfectly.
Luke J. Graham is an organizational behavior and real estate market analyst. He is currently completing postgraduate studies at the University of Oxford.
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