Forecasts affected by the unexpected

Some prognosticators have been known to say that it’s a perilous journey that one embarks upon when attempting to predict the future, since there are so many things that can happen to derail what at first seemed so correct and logical.

At the Edmonton Real Estate Board’s recent forecast session, the board compared actual 2006 results with what had been predicted to occur. The comparison showed quite a different outcome between what was predicted and what actually happened in the real estate market. 

For example, the board had predicted a slight decrease in MLS® home sales, but there was actually a 19 per cent increase. The board also called for a six to eight per cent increase in home prices. Home prices were up indeed, but by a staggering 48 per cent. A better-than-expected booming oil economy and high demand for housing pushed home prices beyond expectations. 

There is always something unforeseen that can sidetrack original predictions. Even the most seasoned prognosticator’s forecast can fall prey to the unexpected.

Boards and associations across Canada tend to err on the side of caution rather than make wild speculations on the strength of the marketplace. If the market does outperform expectations, then it comes as a pleasant surprise — usually the previous year’s statistics could not have led them to make such a bold forecast. It’s illogical for any forecaster to downplay high expectations following a record-breaking year. This is especially true when considering a market such as Alberta, which is subject to dramatic booms and busts.

In Winnipeg, the prediction is for market strength, but the dollar volume sale amount is only expected to rise by single-digit percentages rather than the double-digit percentages experienced since 2002. The association is also predicting MLS® unit sales this year to be similar to the 12,000 sales recorded in 2006. A new benchmark for sales had been set in 2005 and then surpassed in 2006.

Traditionally, Winnipeg’s market is not subject to booms and busts but continues forward at a steady pace.

The accompanying charts were used at the recent WinnipegREALTORS® Association forecast breakfast to highlight the upswing in the local residential market.