Honesty in forecasting

The Australian media seems to be in love with talking about real estate. In particular bubbles, and (even though they don't use the term) forecasts.

Rather than commenting about what is being written, I want to talk about what is good about these discussions.

Something positive - Honesty

BIS Oxford Economics (previously BIS Shrapnel) needs to be acknowledged as a leader in the forecasting field.

Unlike a huge number of organisations - worldwide - BIS publishes its performance. In the BIS Shrapnel’s median house price forecasts report you can see their performance over time.

Their honesty is refreshing. It should be aspired to by anyone who purports to have a view of the future. This honesty is why they are one of the main economic forecasting organisations in Australia.

Perth

Perth is an interesting city for forecasting. Where (according to BIS Oxford Economics) both nationally, and for Sydney, price increases have been relatively monotonic. Forecasting something to go up when it keeps going up is easy... However, Perth has growth spurts and then the market comes off. What FUN!

Let's look at a simple part of the forecast. I want a forecast for Perth three years out. I also want to see how that forecast performs over time.

BIS Oxford Economics - Perth

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In this plot the short coloured lines show the performance of the 3-year forecasts. I've highlighted the forecast beginning 2005. It underestimates the actual market performance by half. Ouch

Vifortech Solutions - Perth

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Here we see the performance of the Vifortech Solutions 3-year forecast, again, against actual. The thick horizontal bars show the data window included in the forecast, then highlighting the point of the forecast.

I'm comfortable saying that I trust the Vifortech Solutions 3 year forecast more than the alternatives and it looks more predictive.

However, without the upfront honesty shown here how would we know? More importantly, what aren't we being told about their performance by other seers?

On the other hand...

Now, you can draw conclusions about what is missing in discussions about real estate and forecasting from what I'm not saying.

...or you can wait for another blog post.

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