BANK ECONOMISTS – WRONG AGAIN

Last Saturday’s Dominion Post front page story was about the local red-hot housing market.

Lower Hutt’s biggest residential real estate firm’s boss, John Ross, was quoted saying he’d never seen a market with so much demand pressure. To various extents this is the case nation-wide.

I mention this for a reason. A few months back on this blog I remarked about the spate of forecasts from Bank economists, all predicting in the gloomy economic times ahead, big falls in house values.

This was reminiscent of the same forecasts from Bank economists after the 2008 banking crisis, on that occasion predicting in some cases, falls of 50%. I rubbished that then as I did this time.

Prices are set by supply and demand. In this country housing demand massively outweighs supply. Add to that historically cheap interest rates and far from a collapse in value, prices are likely to soar.

The end of the lockdown admittedly caused a current boom as permission was finally granted for everyone to come out from under their beds (so long as they were kind of course). But the salient fact was the demand-supply imbalance.

As I also wrote, a possible exception might be inner city Auckland apartments, developers, as is their wont, seemingly producing a glut. But not so with housing.

Here’s the question though. Over the years our media frequently reports the views of Bank economists on a wide range of economic issues. They have one uniform consistent factor, namely their prophecies are nearly always wrong.

Harvard has actually established a Chair in this subject, namely why, year in and year out, economists exchange rate forecasts are not only always wrong, but diametrically so. If in January they predict say that the pound will fall in value over the year ahead against say the euro, always, always the opposite happens.

This phenomenon on my estimation, has been the case for at least the last quarter century. In my comic novel “OGG” published 18 years ago, I had an enterprise making a fortune, solely by researching each January, economist’s consensus world-wide forecasts on different currencies movements, then backing the opposite outcome.

The problem with economic forecasting is that economics is not a factual science but a behavioural discipline and when it comes to human behaviour, always expect the unexpected.

 

 

14 Comments

Economists are like accountants, they are only right when looking backwards.

Hi Bob, any chance that you’ll release some of your old books for sale digitally?

Bob mentions his book OGG. If you haven’t read it, I can thoroughly recommend it – one of the best books I have read, brilliantly funny and full of business wisdom. Cheers Reg

How true re foreign exchange. Bank advice cost me a fortune in the late 80s. Eventually worked out to ignore their advice to achieve a much better result.

Economists were invented to make astrologers look good

What was Bob’s call on the unemployment rate post COVID again?

And the economists do expect the unexpected, Bob. No one can predict with certainty what the government will do next. No one predicted that John Key was going to flood the country with ramped-up immigration, for example. All predictions are based on current trends.

By the way, the heart of the issue is not the supply – it’s the reason why we’re not getting the supply. And that is the *cost* of supply. Allow people to once again build new homes at normal (not artificially inflated) cost on the fringes, and the criminal price-inflation we know gets turned into a building-boom, on steroids, overnight….

But! Can anyone predict if National is lying ONCE AGAIN and will only pretend to replace the RMA, and in a way that breaks down the land banking? No one knows.

Rather cruel comments on economists, after all they have successfully predicted 29 of the last 3 recessions.

Bob, you also wrote in April that the house sales business was in big trouble and you believed the world was heading for a 1930’s depression. In May you wrote the residential agents have a very good year ahead of them. Clearly those diametrically opposed predictions a month apart allude to your comment to always expect the unexpected with economic forecasting.
I look forward to reading your novel “OGG”.

In the past we were significant agri property borrowers. For our interest rate management, we carefully followed a policy of doing the exact opposite of what our banks economist recommended. When he said float we fixed and when he said fix (which was most of the time) we floated. We have saved hundreds of thousands of dollars of interest cost by sticking to this policy.

Wait for the wage subsidy and mortgage repayment freeze to end, then you’ll see some chaos.

t won’t be an even decline across the country, but there will be some serious price drops. Remember the real estate industry only really measure the median sale price. Look deeper into the numbers around February and there will be plenty of unemployed home owners or bust business owners selling their rental investments.

Someone who has seen their $500,000 purchase double to a valuation of $1m over the past decade can still sell for $800,000 and walk away with $300,000 in profit. When the desperate flood the market there will be a significant drop in house prices.

After the GFC, the queen asked the economists why no one saw it coming. The answer was silence
https://www.telegraph.co.uk/news/uknews/theroyalfamily/3386353/The-Queen-asks-why-no-one-saw-the-credit-crunch-coming.html

To early to really see the unemployment levels peak while the wage subsidy is still in place, the economy is slow to react to changes we might be well into 2021 before the real pressure starts to unravel dentalisnz.
I hope it not as bad as Sir Bob predicts but its likely to be worse than Robson predicts

I was paying 22 % interest on my first home in 1986.
Time will tell when the wage subsidies are removed in September as to whether the demand for housing remains the same.

Leave a Reply to Reg Garters Cancel reply

%d bloggers like this: