In January 2020, most major bank economists predicted moderate house price growth of 3-5% across Australia for the coming year. Within three months, a pandemic had shut the economy. Property transaction volumes collapsed. Predictions of 10-20% price falls appeared in major publications.

What actually happened? After a brief dip, prices surged by 22% nationally over the following two years, the largest boom in decades.

Nobody predicted that. Not the banks, not the independent economists, not the property spruikers, not the doom-and-gloom commentators. Every single mainstream forecast was wrong.

This isn’t an anomaly. Property price forecasting has a dismal track record, and understanding why might save you from making bad decisions based on someone else’s confident-sounding prediction.

The Track Record

Domain and various financial outlets compile property price forecasts from major banks and economic consultancies every year. If you go back and compare the forecasts to actual outcomes, the results are sobering.

In any given year, the average forecast error for national house price growth is about 5-8 percentage points. That means when someone predicts 4% growth, the actual result is typically somewhere between -4% and +12%. That’s not a useful prediction.

The errors get worse at turning points - exactly when accurate forecasting would be most valuable. Almost nobody predicted the post-COVID boom. Almost nobody predicted the speed of the 2022-2023 correction when rates rose. The consensus forecast is routinely wrong at the moments that matter most.

Why Forecasts Fail

Several structural reasons explain why property price forecasting is so unreliable.

Interest rate uncertainty. Property prices are heavily influenced by interest rates, and interest rates are set by the RBA based on evolving economic data. Forecasting property prices requires accurately forecasting interest rates, which requires accurately forecasting inflation, employment, and global economic conditions. Each step introduces more uncertainty. Errors compound.

Policy changes. Government interventions - first home buyer grants, stamp duty changes, lending regulations, immigration policy, zoning reforms - can significantly shift market dynamics. These are political decisions that are inherently unpredictable. The 2020 HomeBuilder grant, for example, turbocharged new housing demand in ways nobody modelled because nobody knew it was coming.

Sentiment and psychology. Property markets are influenced by human behaviour, and human behaviour is not always rational. Fear and greed drive buying and selling decisions in ways that are difficult to quantify. A market can be fundamentally overvalued and continue rising for years because buyers believe it will continue rising.

Data limitations. Property is heterogeneous. Every house is different - different location, condition, aspect, land size. National or even city-wide median price figures smooth over enormous variation. A 5% increase in the national median tells you almost nothing about what happened to the specific type of property you’re interested in, in the specific suburb you’re looking at.

Lag effects. Property market data is inherently lagged. Settlement data reflects transactions that occurred weeks or months earlier. By the time a trend appears in the statistics, it may already be reversing on the ground.

Who Gets It Least Wrong?

Some forecasters perform better than others, but the gap between best and worst is smaller than you might expect.

The Reserve Bank of Australia doesn’t forecast property prices directly, but its economic outlook statements give useful context about the macro conditions that drive property markets. Reading the RBA’s quarterly Statement on Monetary Policy is more useful than reading any property price forecast.

Independent research houses like SQM Research and CoreLogic tend to be more grounded in data than bank economists, who have institutional incentives (banks sell mortgages) that can colour their outlook. But even the best independent researchers have significant forecast errors.

The most reliably wrong forecasters are property commentators with something to sell - whether that’s a subscription service, a buyer’s agency, or a property development. When someone’s income depends on you buying property, their forecast tends to lean bullish.

What to Do Instead

If forecasts are unreliable, how should you make property decisions?

Focus on fundamentals, not predictions. Can you afford the mortgage repayments at current rates plus a 2% buffer? Is the location genuinely suitable for your needs? Does the property have characteristics that will remain in demand (good land, proximity to transport and amenities, established neighbourhood)?

Think in decades, not quarters. Over any 10-year period in the last 50 years, Australian capital city property prices have increased. The path is lumpy - there are booms and corrections along the way - but the long-term trajectory has been consistently upward. If you’re buying to live in for a decade or more, the question of whether prices rise 3% or 8% this year is almost irrelevant.

Watch supply and demand indicators. Listing volumes, days on market, auction clearance rates, rental vacancy rates, building approval numbers - these are observable, current data points that tell you what the market is actually doing right now. They’re far more useful than someone’s prediction of what might happen in six months.

Be sceptical of certainty. Anyone who tells you with confidence exactly what property prices will do next year is either deluded or selling something. The honest answer is “probably up over the long term, but I don’t know by how much or when.”

The Bottom Line

Property price forecasts are entertainment, not information. They generate headlines, fill newspaper columns, and give talking heads something to argue about on TV. But they are not a reliable basis for the biggest financial decision most Australians will ever make.

Buy property based on your personal financial position, your housing needs, and the long-term fundamentals of the location. Ignore the forecasts. The forecasters themselves would probably tell you the same thing if they were being honest.