Who Cares About Real Estate Forecasts?

11 January 2012

Everyone wants to be a real estate expert. In order to be classified as an expert, you have to be able to make a real estate forecast. Many of the experts keep changing or updating their forecasts to ensure that they are never or rarely wrong. Hence annual forecasts start in January and we get weekly updates. The basis of these forecasts is economics and they assume that buyers and sellers are rationale decision makers. The truth is that most people buy and sell for non-economic reasons. Take condos. People tend to buy a condo for their needs today. Younger people want their own pad, they partner up, they separate, and they have kids. All of these events cause people to buy and sell. Consider older people. They move to a retirement home, they move to be closer to their family, or they may even die. I have never heard an Executor of an Estate say the market is not right today, let’s hold on to the parent’s condo for another year. So you see, most sales are not governed by economic factors at all. The size of our market will be determined more by human events. The more people, the more sales! Pretty simple. In terms of prices, real estate does not work like other investment markets. In those markets when there are more sellers than buyers, the price will fall until buyers and sellers come into balance. In real estate, if an owner does not get their price, they just take the property off the market. They do not lower the price! Why do you think that the sales-to-listing ratio is never 100%? In fact normal is closer to 35%! Hence over time, real estate prices will only increase. The experts don’t want you to hear that! The only time when prices fall is when people have to sell at any price – the U.S. experience when people cannot make their mortgage payments. Could that happen in Canada? Not likely. Currently, mortgage arrears in Canada are just under .4%. In the U.S. the number is 7% or 17 times greater. In summary, we don’t really need real estate forecasts. But people always want to know what the experts have to say about the future. And forecasts make good media copy too.