Up 37% or down 18%? The Difficulties of Trying to Make (and Synthesize) Blanket Forecasts in Real Estate

The Wall Street Journal posted an article today (found here) that throws around wildly varying projections of the future of real estate value. For instance, without much ado or explaining, the editor let this slide:

Some of the forecasters surveyed by MacroMarkets were far from the average. Joseph LaVorgna, an economist at Deutsche Bank, sees home prices rising 37% by the end of 2014. Both Anthony Sanders, a professor of real-estate finance at George Mason University, and Gary Shilling, president of A. Gary Shilling & Co., expect declines of about 18%.

Your gut may be asking you – “If I (or someone) bought a $1M two bedroom in Chelsea it could either net me $370,000 or I could possible lose $180,000?”. Well both situations are unlikely, and here is why.

During the housing bubble there was a glut of new construction and renovation all across the country – both in redeveloping in places close to here like Alphabet City and Brooklyn, and some other much harder hit places like planned suburban communities in Florida. If you were looking to buy in the East Village now or across the bridge then in the words of our fearless leader Kenny Blumstein – I would bet my net worth that in 3-5 years you are seeing definitive appreciation (unfortunately for you this is Grant writing not Kenny so that bet may have a little less luster). As for that Florida Condo? Well did the highway rerouting plans or that planned golf resort community down the road get canned along with a dozen odd other construction problems? Then you might be in a bit of trouble.

The problem then becomes that these two scenarios are balanced against each other in the greater scheme for ‘America’s’ Real Estate recovery (or further demise). These competing opinions that worm their way around the internet do no expound methodology – most often not even laymen’s terms. Does the bubble-esque 37% increase exclude sales of foreclosed properties? Does a 18% drop include new development set to come to market?

Estimates of national growth or decline may be of interest to a select few economists who can parse out the wheat from the chaff, but often sensationalist declarations are what gets covered in mainstream focused media. Do not use these estimates for your own rationalization when thinking about buying or selling your home. Instead, find a local expert (perhaps a trusted real estate agent, appraiser, etc) who will know how the market conditions you live in will affect your investment.

UPDATE: Always good to have some vindication.  Check out The Apple Peeled’s article on the importance of thinking local in regards to the state and future of ‘the market’

– Grant “Data Head” Braswell