Covid: Put a spanner in the works
Predictions for the economy didn’t come true as pandemic arose
In early 2018, and again in 2019, I made a series of public predictions outlining what I thought would happen with the Kiwi property market over the following year. These predictions turned out to be remarkably accurate, with 13 of the 14 predictions that I made panning out pretty much as I had indicated. It was an impressive hit rate (around 93 per cent) and was consistent with other, one off, comments I’ve made over the past few years which have generally turned out to be reliable indicators of market actions and developments.
However, my predictions for 2020 — the year we’re innow— have turned out to be mostly wrong. They included a prediction that Auckland house prices would stay flat (they’ve increased sharply), a prediction that house prices in the regions would start flattening off (nope), the prediction that the loan-to-value restrictions would remain unchanged (the Reserve Bank completely removed them earlier in the year), and — my personal favourite — the prediction that the National Party would win the 2020 election!
Of course, I wasn’t on my own. Almost every commentator on property and the wider economy got their 2020 predictions wrong — somemore spectacularly than others.
So what happened? Why did the so-called experts mess up so badly? The answer is simple. Covid-19.
Although there was some early media coverage of Covid-19, in January, no one anticipated the huge impact that the pandemic would have on both New Zealand and the global economy and the extent to which this would completely obliterate “normal” economic forecasts which had been based on previously predictable conditions. As a result of the pandemic we’ve seen a massive global effort to support economies, boost growth, and sustain confidence. To achieve this central banks have ripped up the economic rule book and abandoned decades of economic orthodoxy in favour of “pump priming” solutions — something that would have been unthinkable in New Zealand even 12 months ago.
This has has had an impact on the property market in several ways — particularly through the aforementioned removal of the LVR restrictions and a big reduction in mortgage
interest rates, the combination of which has led to the early onset of the next Auckland property boom and has added wind to our regional property markets. No one saw this coming, particularly the main trading banks which all predicted that Covid would lead to sharp declines in house prices and a cascade of mortgage defaults. So if the experts can get it so wrong, should you even listen to them? Do their views really add any value? I think the answer is still a cautious yes. While you shouldn’t be basing your financial future on the views of market commentators — but their views are still an important input to the larger conversation. But exercise some caution and don’t just accept a view because it appears somewhere in the media.
Next time you’re confronted by an expert’s view of the property market, ask yourself these questions:
■ 1. “Is this person/institution usually accurate in their comments?”
Check their track record. Do an internet search and find out whether they’ve generally been accurate over time.
■ 2. “Is their opinion based on good information?”
One of the reasons that a lot of the commentary on the Kiwi property market (eg, periodic predictions of a market crash) is wrong is because it ignores the history of the market and is based on recent events, without context. Look for views to be backed up by historical data and knowledge.
■ 3. “Do they admit when they’re wrong?”
A few weeks ago, Westpac senior economist Dominic Stephens came out and admitted that the bank got its Covid-19 property predictions wrong. It was exactly the right thing to do and enhanced the forecasting credibility of Westpac because it demonstrated self-awareness and selfcorrection. Look for this.
■ 4. “Is this opinion or fact?”
A great deal of the commentary on the housing market — including a lot of my own — is based on the opinion of the writer. There’s absolutely nothing wrong with that, but the distinction needs to be clear so that you can make an informed judgement. This is easy to gauge when you’re dealing with individuals, but much more difficult when you’re dealing with institutions where a corporate brand can give the impression that an individual’s opinion carries more weight than it should.
■ 5. “What’s this person’s/institution’s property background?”
You’d think this would be a given — but it isn’t. Too many people passing opinions on the property market have no experience in that market. Don’t be caught out by this.
Why did the socalled experts mess up so badly? . . .
Covid-19.