Was the Senior Partner at Oxford Economics away on holiday?

The National Housing Federation (which represents 1,300 English Housing Associations) has today released annual Home Truths report, based on research by Oxford Economics.

Mortgage brokers Charcol dubbed last year’s Home Truths report as a “Dodgy Dossier” because of its questionable maths. Last year’s report asserted that the 7.5% growth in house prices in 2006 increased the average house price/ earnings ratio from 8 to nearly 11. But the fact that wages grew during that period makes the assertion arithmetically impossible.

And, while we are looking at last year’s report, it is always worthwhile comparing forecast with actual. In 2007 the Home Truths report forecast that “a housing market crash is unlikely” and that house prices would increase by 2.2% (a remarkably precise figure) in 2008.

But looking at the Oxford Economics website today we read that ‘the housing market is already in deep recession, with house prices down 8% or more since last autumn’.

Needless to say, the 2008 report makes no reference to the 2007 report, and indeed is nowhere to be found on the National Housing Federation’s site. I wonder why?

The 2008 report, itself unencumbered by the unbelievably poor forecasts of a year earlier, ploughs ahead to produce another prediction: “25% house price increases by 2013”.

Of course, the desired media response is obtained, on the required front pages:

• Daily Express (the world’s greatest newspaper) “House Prices to rise by 25%”, and
• Daily Mail: “House prices will rise by 25% over the next five years, say experts”.

Of course, “say experts” is the vital part of the headline.

Why does Oxford Economics make these assertions? And what assumptions is it making about the availability of housing finance, the relative attraction of investing in other assets, unemployment, immigration, wage inflation?

No clarification was forthcoming from either the National Housing Federation or Oxford Economics. Meanwhile, most of our national papers cover a 25% increase in house prices.

What can we conclude from this?

1. That forecasting the UK housing market is fraught with peril
2. That forecasts that help the housing industry (which includes estate agents, politicians, lenders, newspapers …) will be uncritically bandied around by our national press
3. That there is a deeply-held belief that house prices must always go up, that this is a good thing, and that everybody benefits from house price increases
4. That getting yourself heard is more important than what is actually heard, especially if it offers good news in a time of bad news
5. That most commentators do not have the time, energy or patience to challenge the reports that are being produced
6. That obtaining the supporting data, assumptions and algorithms behind these forecasts is a non-trivial exercise
7. That the Senior Partner at Oxford Economics was indeed away on holiday