How to identify a misinformed property forecaster: Hotspotting's Terry Ryder
EXPERT OBSERVER
Here’s the hardest thing for real estate consumers doing research: who do you believe?
It’s hard to know who’s worth listening to and who is not. There are so many people pumping out press releases, writing commentary pieces and pontificating on television about our housing markets – and only a small fraction of this mass of white noise is worthy of your attention.
But there are markers which expose the pretenders – clues which allows you to separate the genuine experts.
Here’s how to identify the pontificators you should ignore:-
1. They discuss Australian real estate as a single market
The Federal Treasurer Josh Frydenburg exposed himself as a pretender in a recent column published in The Australian. His opening paragraph stated, as a fact: “Prices in our major capital cities have fallen for 12 consecutive months …”
In doing so, one of our most senior federal politicians perpetuated one of the worst pieces of misinformation currently out there.
Frydenburg’s statement is outrageous misinformation. One source that is often quoted, CoreLogic, has the average result for the eight capital cities as a negative figure, but at the same time records that nine of the 14 major market jurisdictions (eight capital cities and six regional areas) have prices higher than a year ago.
Other research sources have different figures. SQM Research, for example, records the national average results as a 1.7 percent rise in annual terms, while the latest ABS figures record quarterly price rises in five of the eight capital cities.
So the claim that prices have been falling everywhere for 12 months is unsupported by any of the research evidence. The Federal Treasurer is simply parroting misleading media headlines.
But Frydenberg is not alone in his ignorance. Indeed, he has lots of company, when it comes to extrapolating the Sydney/Melbourne situation into a national downturn. Economists, in particular, are prone to misinforming Australians by discussing the nation as a single market and often getting their analysis wrong by generalising about prices.
We’d all be better off if they simply shut up.
Contrast that with these recent comments from someone with real credentials, veteran adviser and commentator Noel Whittaker:
“The problem is that most media commentary focuses on that elusive animal they call the ‘property market’. We might be told that Australian property is overheated, or that the property market has fallen by 5.6 per cent in the last year (in Sydney), or that Perth values have fallen by 12.6 per cent after peaking in 2014.
“But the fact is there is no such a thing as a single property market – not for Australia, not even for a single capital city – there are myriad property markets all doing their own thing. How can you compare a townhouse in Cairns with a mansion in Point Piper? All over Australia some markets may be rising, other markets may be falling, and some may be flat.”
Whittaker has encapsulated exactly how I see it.
Next time you hear/read a commentator discussing “the Australian property market” or claiming that “Australian house prices have fallen 5 percent”, turn the page or change channels because the talking head/writer is a charlatan pretending to be an expert.
2. They’re not real estate specialists
The problem with Josh Frydenberg is that, while he may prove to be a capable Treasurer, he’s not a real estate expert. Residential property is not his specialty.
This is the core problem with many of the prolific pontificators. Economists frequently make the mistake of thinking they can extrapolate their financial knowledge and economic theories to the real estate market. After 35 years as a real estate specialist, I’m still waiting to encounter an economist who understands the peculiar dynamics of real estate markets.
Last week I wrote about my Top 20 Worst Predictions About Australian Real Estate. Most of the people who made that list by getting their predictions horribly wrong were economists who strayed outside their area of speciality.
True real estate experts who are worthy of your attention are those who are genuine specialists for whom researching markets is a daily routine. They’re also people who don’t treat real estate data as a vehicle for free publicity, but as a means to inform the public by presenting well-considered and balanced analysis.
They include people like Louis Christopher of SQM Research and Simon Pressley of Propertyology. These are genuine experts who specialise in residential property. I don’t suggest they’re right about everything but they have earned the right to be heard by being real, independent, devoted experts.
3. They believe it’s all about interest rates
Most of the pretenders talk about the level of interest rates as the prime determinant of real estate markets and their cycles.
Ask your average economist why Sydney boomed and they’ll tell you it was “record low interest rates”.
This is a ridiculous for several reasons. If the level of interest rates was the catalyst, why no boom in Brisbane? Or Adelaide, Canberra and most of regional Australia. Why have prices fallen in Perth and Darwin during this period of record low rates?
It’s false logic to assume, as many economists do, that low rates = boom and rising rates = downturn. The two big nationwide property booms of the past 30 years (late Eighties and early Noughties) both occurred during periods of high and rising interest rates.
The end of the Sydney/Melbourne booms occurred with interest rates still at these very low levels.
The profile of the person you should ignore is an economist who rants about “the Australian property market” in the context of national factors like interest rates and APRA decisions – and generally tends to feel that everything that happens in real estate markets is an outrage because it doesn’t fit with their economic models of what prices should do and where values should be.
The genuine expert will discuss individual markets, include different sub-markets within each of our major cities, and will understand the fundamental importance of the underlying local economies, influenced by population trends, infrastructure spending, jobs creation and supply-demand factors.
Terry Ryder is the founder of hotspotting.com.au
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