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THE ACCURACY OF PROPERTY FORECASTING IN THE UK. GRAEME NEWELL University of Western Sydney and PATRICK McALLISTER University of Reading. June 2009. PROPERTY FORECASTING. Importance Uncertainty Procedures quantitative - qualitative Role of judgement 2008 property environment

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the accuracy of property forecasting in the uk

THE ACCURACY OF PROPERTY FORECASTING IN THE UK

GRAEME NEWELL

University of Western Sydney

and

PATRICK McALLISTER

University of Reading

June 2009

property forecasting
PROPERTY FORECASTING
  • Importance
  • Uncertainty
  • Procedures
    • quantitative - qualitative
  • Role of judgement
  • 2008 property environment

- UK@ -22.1% - Ireland @ -34.2%

- Norway@ -4.7% - Sweden@ -3.3%

- Spain@ -2.9% - France @ -0.9%

previous research
PREVIOUS RESEARCH
  • Forecasting rents, yields etc.
  • Econometric/structural modelling
  • Comparison of forecasting procedures
  • Simple forecasts versus econometric models
accuracy of property expert forecasts
ACCURACY OF PROPERTY EXPERT FORECASTS
  • US: Ling (2005)
  • UK: McAllister, Newell and Matysiak(2008); Tsolacos (2006)
  • Australia: Newell and Karantonis (2003);

Newell and MacFarlane (2006)

  • Consensus and individual forecasts
accuracy issues
ACCURACY ISSUES
  • Uncertainty
  • Disagreement
  • Conservative forecasts; bias
  • Inertia
  • Group differences
  • “Numbers” versus “turning points”
  • Individual forecasters

- consistency - banding

- persistence

purpose
PURPOSE
  • Assess accuracy of UK property forecasts re: 2008
  • IPD Overall @ -22.1%
  • IPD Office @ -22.4%
  • IPD Retail @ - 22.6%
  • IPD Industrial @ -21.2%
  • Accuracy

- uncertainty - disagreement

  • Behavioural issues
methodology
METHODOLOGY
  • Investment Property Forum
  • “Survey of Independent Forecasts”
  • 1998 – 2009; quarterly; UK
  • Expert opinions : #= 18-37

- property advisors - fund managers

- equity brokers

  • Capital returns, rental growth, total returns
  • Property sub-sectors
  • Forecasts generated to end of year

- up to 3 years ahead

methodology1
METHODOLOGY
  • Focus = 2008 total return forecasts
  • Up to 36 months ahead
  • 36M, 33M, …, 9M, 6M, 3M
  • # 2006-08 participants: 24 – 37
  • # property advisors: 10 – 18
  • # fund managers: 9 – 16
  • # equity brokers: 3 – 5
  • Statistical analysis

- MAE - MAPE

- range - Theil U1 statistic

best forecaster
“BEST” FORECASTER
  • Groups:
    • PAs: 0% - FMs: 75% - EBs:25%
  • Individuals:
    • PAs: 25% - FMs: 58% - EBs:17%
worst forecaster
“WORST” FORECASTER
  • Groups:
    • PAs: 42% - FMs: 0% - EBs:58%
  • Individuals:
    • PAs: 33% - FMs: 42% - EBs:25%
property forecasting implications
PROPERTY FORECASTING IMPLICATIONS
  • Accuracy re: 2008 property forecasts
  • Uncertainty versus disagreement
  • Conservative bias
  • Improvements over time : 36M  3M
  • Critical times
  • Group differences
  • Sector differences
  • Other issues re: changes in forecasts

- impact of news - expected returns (IPD monthly)

- anchoring

  • 2009 property forecasts?