THE ACCURACY OF PROPERTY FORECASTING IN THE UK
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Transcript of THE ACCURACY OF PROPERTY FORECASTING IN THE UK
THE ACCURACY OF THE ACCURACY OF PROPERTY PROPERTY
FORECASTING IN THE FORECASTING IN THE UKUK
GRAEME NEWELLUniversity of Western SydneyandPATRICK McALLISTERUniversity of Reading
June 2009
PROPERTY FORECASTINGPROPERTY 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 RESEARCHPREVIOUS RESEARCH
Forecasting rents, yields etc. Econometric/structural modelling Comparison of forecasting procedures Simple forecasts versus econometric
models
ACCURACY OF PROPERTY ACCURACY OF PROPERTY EXPERT FORECASTSEXPERT 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 ISSUESACCURACY ISSUES Uncertainty Disagreement Conservative forecasts; bias Inertia Group differences “Numbers” versus “turning points” Individual forecasters
- consistency - banding - persistence
PURPOSEPURPOSE 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
METHODOLOGYMETHODOLOGY 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
METHODOLOGYMETHODOLOGY 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
Target = -22.1%Target = -22.1%
MEAN ABSOLUTE ERRORMEAN ABSOLUTE ERROR
36M 24M 12M 6M 3M
All : 22.4 19.7 13.3 8.4 5.3
PAs : 22.8 20.1 13.5 8.7 5.5
FMs : 21.7 19.1 12.8 7.5 4.3
EBs : 22.5 18.7 13.3 9.1 4.6
Office : 23.8 20.8 13.1 7.7 4.6
Retail : 22.3 19.9 14.4 9.5 6.0
Industrial : 21.9 19.3 13.4 9.0 5.8
MEAN ABSOLUTE PERCENTAGE MEAN ABSOLUTE PERCENTAGE ERRORERROR
36M 24M 12M 6M 3M
All : 101.1% 89.1% 60.2% 38.0% 24.0%
PAs : 103.0% 90.7% 61.2% 39.1% 24.9%
FMs : 98.2% 86.5% 57.9% 33.9% 19.5%
EBs : 101.9% 84.7% 60.3% 41.0% 20.8%
Office : 106.2% 92.8% 58.4% 34.4% 20.5%
Retail : 98.9% 88.2% 63.5% 42.0% 26.6%
Industrial : 103.4% 91.0% 63.4% 42.2% 27.4%
THEIL U1 STATISTICTHEIL U1 STATISTIC
36M 24M 12M 6M 3M
All : 0.80 0.70 0.44 0.25 0.14
PAs : 0.81 0.72 0.45 0.26 0.14
FMs : 0.79 0.69 0.43 0.22 0.11
EBs : 0.79 0.66 0.44 0.28 0.12
Office : 0.82 0.72 0.43 0.22 0.11
Retail : 0.80 0.70 0.47 0.28 0.15
Industrial : 0.82 0.72 0.47 0.28 0.16
AVERAGE RANGEAVERAGE RANGE
36M 24M 12M 6M 3M
All : 10.30 10.70 10.40 10.20 9.50
PAs : 7.10 7.40 7.50 7.10 5.60
FMs : 8.40 8.30 7.70 6.60 6.60
EBs : 5.70 7.00 7.30 6.80 9.50
““BEST” FORECASTER: MAEBEST” FORECASTER: MAE
36M 24M 12M 6M 3M
All : 16.70 14.10 7.80 3.70 0.60
PAs : 18.70 16.00 9.30 5.10 2.10
FMs : 17.30 14.80 8.60 4.00 1.10
EBs : 19.60 15.40 10.10 5.90 0.60
““BEST” FORECASTER: MAPEBEST” FORECASTER: MAPE
36M 24M 12M 6M 3M
All : 75.50% 63.70% 35.40% 16.70% 2.70%
PAs : 84.60% 72.60% 42.10% 23.10% 9.50%
FMs : 78.30% 67.10% 38.70% 17.90% 5.00%
EBs : 88.90% 69.60% 45.50% 26.50% 2.70%
Theil 0.58 0.48 0.25 0.12 0.01
““BEST” FORECASTERBEST” FORECASTER
Groups:– PAs: 0% - FMs: 75% - EBs:25%
Individuals:– PAs: 25% - FMs: 58% - EBs:17%
““WORST” FORECASTER: MAEWORST” FORECASTER: MAE
36M 24M 12M 6M 3M
All : 27.0 24.8 18.3 13.9 10.1
PAs : 25.8 23.6 17.0 12.7 7.7
FMs : 25.8 23.1 16.3 10.5 7.7
EBs : 25.3 22.4 17.4 12.6 10.1
““WORST” FORECASTER: MAPEWORST” FORECASTER: MAPE
36M 24M 12M 6M 3M
All : 122.20% 112.00% 82.60% 62.90% 45.70%
PAs : 116.90% 106.60% 76.90% 57.50% 34.80%
FMs : 116.50% 104.60% 73.70% 47.50% 34.80%
EBs : 114.70% 101.30% 78.50% 57.00% 45.70%
Theil 0.91 0.86 0.67 0.47 0.30
““WORST” FORECASTERWORST” FORECASTER
Groups:– PAs: 42% - FMs: 0% - EBs:58%
Individuals:– PAs: 33% - FMs: 42% - EBs:25%
PROPERTY FORECASTING PROPERTY FORECASTING IMPLICATIONSIMPLICATIONS
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?