Forecasts Move Sentiment. They Shouldn't Move Your Decisions.

TL;DR

Forecasts about house prices and interest rates get quoted everywhere and shape how investors feel. Their hit rate is weak, and that holds across the whole field, not just banks. This isn't about competence. The future resists precise prediction. So don't anchor your decisions to anyone's forecast. This post explains why forecasts miss and which leading indicators are actually worth watching.

Every few months a forecast lands on where house prices and rates are heading. The media quotes it. Investors anchor to it. Conditions shift, the forecast updates, and the cycle repeats.

This isn't a scandal, and forecasters aren't frauds. They're smart people doing genuinely hardwork. The issue isn't competence. It's that predicting a complex economy with any precision is close to impossible. Which means anchoring your decisions to a single forecast leaves you exposed when it misses, and it misses often. Here's why, and what to watch instead.

Why Forecasts Miss

Forecasting is genuinely hard. The economy is a complex system with countless interacting variables and random shocks. Predicting it precisely is close to impossible, and the honest forecasters say so.

Models rely on assumptions. A forecast is only as good as its assumptions, and reality routinely violates them. One unexpected event, a policy change, a global event (eg. pandemic or war), and the forecast is out of date.

Incentives pull toward consensus. Forecasters everywhere face pressure to cluster around the middle. Being wrong alongside everyone else is safer than being wrong alone, so forecasts converge and then tend to miss together. Contrarian calls carry career risk, which makes them rare.

Recency bias. Forecasts often extend the recent past forward. When conditions turn, they are slow to catch up, which is exactly when following them costs you the most.

The Track Record

Look back at the confident forecasts from a couple of years ago, on prices, on rates, on the timing of turns, and compare them to what happened. The misses are routine and sometimes large. Where rates would peak, when they would fall, how far prices would move, frequently off.

This isn't cherry-picking, and it isn't a knock on any one institution. It's the general pattern across the field. Point forecasts about the future are usually wrong, and the ones that land are often right by luck.

What to Watch Instead

Stop chasing predictions. Watch leading indicators, the actual data that drives outcomes, and form your own view of the direction.

• Net migration, which drives population and demand.

• Building consents, which signal future supply. Down now means tighter later.

• Rental yields and rent trends, which are real, current demand signals.

• Bank serviceability test rates, which tell you the real lending environment.

• Employment data, which underpins demand and serviceability.

• The OCR direction and the Reserve Bank's actual signals, rather than guesses about what they will do.

These are real, current data points, not predictions. They tell you about conditions now and the likely direction, without pretending to know the exact future.

The Better Approach

Don't try to predict the market. Position for resilience across a range of outcomes.

A portfolio that holds up whether prices rise modestly, stay flat, or dip, built on yield and a serviceability buffer, doesn't need a correct forecast. That's the point. You stop needing to predict the future when your position survives more than one version of it.

Where This Leaves You

Forecasts are confident, widely quoted, and frequently wrong. Anchoring your decisions to them leaves you exposed.

Watch the leading indicators instead, form your own directional view, and build a position that doesn't depend on any single forecast being right. The investors who do best aren't the ones who predicted correctly. They're the ones who didn't need to.

Building a resilient position, rather than a forecast-dependent one, is the foundation of how we approach lending.

At CRISP, we structure portfolios to survive a range of outcomes rather than bet on one prediction. Resilience holds up even when the forecast doesn't, which is often.