It is good to see – in an ever-increasingly uncertain world – that 2012 has started like most, with pundits making predictions about the coming year. Sadly, these forecasts are far from expert and are usually more erroneous rather than correct.
Steve Keen’s latest (and consistent) call for an Aussie housing crash is a case in point. The cynic could say that a “broken clock is right twice a day” but Keen’s latest release – with 13 charts in support! – does hold some home truths and whilst the housing market is likely to remain fickle, a crash would involve an astonishing change in our economic fortune.
There are many studies that show that the proverbial dart-throwing monkey hits more bulls-eyes than the so-called experts.
The same applies to octopi (yes, I know the plural for octopus can also be octopus and octopuses, so please don’t email me), and more recently a fox. In short, when analysing predictions against actual results, pundits’ calls are no better than if someone randomly chose across the range of potential outcomes.
Yet certain experts remain in demand and get heaps of exposure. Why is this the case, given that they get it wrong most, if not all, of the time?
In short, it comes down to being confident (or over-confident) in most cases. Professional pundits are not usually paid to make correct forecasts. They are paid to sound convincing.
Forecasters will always make statements that benefit their employers; and those that appear more independent (and remember, very few commentators are truly independent) will make calls that support their brand and positioning.
The more outrageous claims will be largely negative as they feed the media’s insatiable need for bad news. A negative prognosis, as a result, helps raise the profile of the pundit and his or her employer.
So, when I am asked to comment about what is likely to happen this year, I say in a very confident voice, “who knows?” I do like to include a few additional caveats – I just cannot help myself – and often add the following musings:
Most of the experts will be wrong. And if they get it right, it will be more luck than talent. Also, being a contrarian – I do like the sound of my own voice – and given that everyone seems to be forecasting more doom and gloom these days, I think the world will muddle through its current malaise – just as we have done through much of human history – and things will eventually get better.
Exactly when, is anyone’s guess, and perhaps it is best to not even try to pick a date on which things will improve, but rather to simply say that “we are working on it.”
2012 will most likely be another difficult year for residential property. Unemployment and interest rates would have to rise, and markedly, for the housing market to “crash”. I don’t think that will happen. But who really knows.
Similarly, I don’t think things will dramatically improve – there are very few pending catalysts that will drive the residential market. Even in Queensland – where many are anxiously awaiting the outcome of the local, and in particular, state election before they make a major decision – the actual election results might not be as encouraging as many wish. Katter’s Australian Party might pour some heavy rain on Can-do’s campaign. I hope not, but hoping isn’t the same as forecasting is it? Or maybe it is.
So, let’s start 2012 not with forecasts of doom, but with some optimism. When it comes to the things that really matter, there are lots of reasons to be optimistic.
Yes, Europe looks like it is on the brink of collapse; Italians cannot drive boats as well as cars; the Arab Spring is running into summer; Chinese growth could be faltering (but again, who really knows) and North Korea’s future remains as questionable as ever. But on the flip-side (and these are big pluses), we are in better health; there are fewer wars and they are less violent; half the world now lives in cities – which offer stronger job prospects and diverse relationships; poverty, hunger and illiteracy are all declining and we in the west have more of what we want.
We really have turned into a whinging bunch!
And now back to Steve Keen. He is right in that much of Australia’s house price growth is due to the expansion of credit and income growth, and less to do with “supply and demand”. Yes, too, that both credit and income growth are in decline, which coupled with ageing baby boomers is placing a brake on the housing market. I also agree that investments should be based on income and that too many residential investors are really speculators. I also concur that the appetite for residential investment is likely to be much less in coming years when compared to the recent past.
But how these factors translate into a housing crash remains unclear. There is a major disconnect between these trends and the constant tirade about house prices plummeting. I suspect – recent blog rolls support such – that most really don’t give two hoots about such calls. He will most likely be wrong and if he happens to fluke it, what can we possibly do about it? Except adapt and muddle our way through.
2012 – The year of the muddle. Now, that’s my call.