Key takeaways
Financial and property forecasts often fail to accurately predict market trends due to the complexity of economic and human factors.
Rather than relying on predictions, investors should focus on preparing for various scenarios to ensure their investments withstand market fluctuations.
Distinguish between information that is actionable and information that is speculative. Avoid wasting time on “unknowable” details like the exact timing of market changes or rate shifts.
A sound investment strategy accounts for potential downturns by building financial buffers and focusing on long-term goals. Avoid chasing hotspots or making impulsive decisions based on short-term trends.
The desire for certainty leads investors to over-rely on forecasts, which often provide false clarity. Embrace uncertainty by building a robust investment foundation that can weather unexpected changes.
“Predicting rain doesn’t count. Building arks does.”
This well-worn phrase hits the nail on the head when discussing financial forecasting and, in particular, property forecasts.
While predictions may give us some comfort, as we all would like to know what’s ahead for us, when it comes to property, the track record of even the most seasoned property experts’ forecasts fail to hold up against the ever-changing tides of the market.
What this means for real estate investors is that it is important to prepare not just for sunny forecasts but also for any storm that might come their way.
However, the problem today is that there’s more information than anyone could consume, and much of it is “junk.”
If you want to become financially successful, you must pick and choose what financial advice you spend your limited time and attention on.
But how do you do that?
The first step is to become crystal clear about the difference between what’s “knowable” and what’s “unknowable” so that you can stop wasting valuable brain space on unknowable information.
Once you know the difference between unknowable and knowable information, you’ll be amazed at just how much can safely be ignored.
To make things worse, following the exhilarating thrill of the property boom we experienced in 2020-21, a new breed of self-proclaimed property “experts” has emerged.
These individuals, having reaped substantial rewards from that boom, or from investing in some high-growth regional locations over the last couple of years, are now gloating about their seemingly impeccable judgment and expertise, offering to sell you the secret to their success.
The problem is that many of these “property experts” are misguiding novice investors with their anecdotes of easy wealth accumulation, and influence their followers to adopt this distorted narrative.
In my mind, it’s important to differentiate between genuinely skilled investors and those who’ve simply been on a lucky streak.
As Patrick Young humorously puts it:
“The trouble with weather forecasting is that it’s right too often for us to ignore it and wrong too often for us to rely on it.”
This joke, while funny, underscores a serious point—some forecasts tell us little beyond the obvious and are frequently incorrect when specifics are attempted.
The seductive lure of certainty
It’s human nature to seek certainty in an uncertain world, especially when it comes to investing our hard-earned money.
Financial forecasts appear to cut through the fog, offering a beacon of clarity.
But as history shows, they are often more mirage than miracle.
The allure of these forecasts stems from our discomfort with uncertainty.
Who wouldn’t want a crystal ball if it meant the difference between financial success and ruin?
Yet, time and again, these predictions have led investors astray.
What about the forecast of the unemployment cliff when COVID-19 caught us by surprise?
Remember all those forecasts of a housing market crash with interest rates starting to rise in 2022.
What about the mortgage cliff or the fixed rate cliff that was going to lead to a raft of mortgagee sales?
And let’s not forget all the forecasts about when interest rates were going to start to fall.
The problem with predictions
“If I have noticed anything over these 60 years on Wall Street, it’s that people do not succeed in forecasting what is going to happen to the stock market.” – Benjamin Graham
This quote encapsulates the issue with financial forecasting—it’s often as reliable as reading tea leaves.
Financial models frequently misuse historical data, treating past trends as predictors of future guarantees.
This misapplication can lead to disastrous investment decisions, where the past is mistaken for a prologue rather than a lesson.
Of course, the appeal is understandable: forecasts promise to simplify complex markets into digestible, actionable insights.
However, the reality is much messier.
Markets are influenced by myriad factors—economic shifts, policy changes, and, crucially, human emotion, which no model can predict accurately.
Moreover, the financial media makes things worse by prioritising forecasts that grab headlines rather than provide genuine insight, so it’s important to realise it’s not their job to educate you.
It’s the job to get you to click on the headlines and look at the advertisements on their pages.
As a result, investors are often left navigating through “financial porn”—sensational but superficial content that entertains rather than educates.
Crafting a resilient strategy
Rather than relying on uncertain forecasts, I have learned to have expectations, meaning I am prepared for multiple scenarios to ensure my property portfolio can withstand market fluctuations, regardless of what the forecasts predicted.
You see…I recognise that we’re in an interesting time in the property cycle and that a lot will happen over the next decade, so as I said, I don’t make forecasts.
Instead, I have expectations.
Now, there’s a big difference between forecasts and expectations.
I expect there to be another recession sometime in the next few decades.
But I don’t know when it will come.
I expect the property market to rise further over the next few years and then once it reaches a new peak, the price of some properties will tumble, and then the market will pick up again.
But I don’t know when.
I expect interest rates to fall sometime this year, but I don’t know when or how much they will fall.
And I expect another world financial crisis. But I have no idea when it will come.
Now these are not contradictions or a form of cop-out.
As I said…there’s a big difference between an expectation and a forecast.
An expectation is the anticipation of how things are likely to play out in the future based on my perspective of how things worked in the past.
A forecast is putting a time frame to that expectation.
Of course, in an ideal world, we would be able to forecast what’s ahead for our property markets with a level of accuracy.
But we can’t because there are just too many moving parts.
Sure, there are all those statistics that are easy to quantify, but what is hard to identify is exactly when and how millions of strangers will act in response to the prevailing economic and political environment.
Then there will always be those X factors that crop up.
So I plan for the worst but expect the best.
Conclusion
The bottom line is that for investors, the future of property is inherently unpredictable and the best strategy is one that prepares for various possibilities, not one that relies solely on the precarious predictions of financial forecasts.
That’s why it is important to follow a sound, proven investment strategy with a long-term outlook rather than making short-term investment decisions or looking for the next “hotspot.”
And then to hold the best properties you can afford in the correct ownership structures with financial buffers in place to see you through the ups and downs of the property cycle.
After all, it’s not about predicting the next storm but having a sturdy ark ready, just in case.
