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Should you trust your real estate agent's market predictions?

29 Mar 2018

Predicting the future in any industry is a complicated affair, but this is particularly true in real estate, says Schalk van der Merwe, franchisee for the Rawson Properties Helderberg Group.

"As real estate agents, we often get asked questions like 'How is the market doing?', "Is now a good time to buy or sell?" and "I read this prediction, what do you think?","says Van der Merwe. "Depending on the agent, the answer to those questions could be 'Everything is great!' or "We're really struggling!'."

That's a fairly dramatic difference in opinion for two agents working in the same industry at the same time, and yet these discrepancies are commonplace, according to Van der Merwe.

"The reason is that many agents base their predictions not on in-depth assessments of the market, but on their own personal experiences at that point in time," he says. "They're thinking about their own commission, their office's performance, the number of mandates they're getting and the frequency of their buyer enquiries. Those elements are certainly important, but they're only one piece of a much larger and more complicated puzzle."

In order to get a more holistic understanding of market trends and direction, Van der Merwe says agents need to look beyond their own front doors' and beyond their own industry.

Five key elements

"In my mind, there are five key elements that can help us figure out the state of the property market," he says. "Those are: jobs, inventory, historic performance, finance and politics."

The job situation, he explains, gives good insight into disposable income. When people are doing well, they're more likely to buy property. When they're struggling to get by, big investments take a back seat. "Take a look at local unemployment levels, and try to assess whether they're getting better or worse. What is wage growth like, and how does that compare to things like inflation?" he says.

As for inventory, Van der Merwe says this demonstrates market activity, and can be the first sign of growth or stagnation periods to come. "The ratio of supply and demand can be quite telling," he says. "How many properties are coming onto the market, and do these match, exceed, or fall short of demand? Fluctuations in this ratio often indicate changes on the way."

Current market performance is not a stand-alone factor, however. Van der Merwe says it must be considered in conjunction with historic performance. "Property is cyclical, so any predictions you make will always be more accurate if you can figure out where in that cycle you are. To do so, an experienced agent will assess market activity over the last decade and compare those trends to what they're experiencing in the present day," he says.

Finance is also important, directly affecting affordability - how easy it is for buyers to secure a favourable home loan. This, Van der Merwe says, ties closely into affordability, which affects potential market growth.

"Politics also affects market growth, but it does so by influencing investor confidence," he says. "Any uncertainty in the direction of current and future leadership can negatively affect buyers' willingness to invest in long-term assets like property."

No crystal ball

While these factors are invaluable in forming an educated opinion on the property market, Van der Merwe stresses the fact that the future remains shrouded in mystery. "We don't have a crystal ball things happen that we can't control and we can't predict," he says, "but a good agent can help you interpret the information that is available to decide on the best course of action for your particular circumstances."

If you're not sure whether your agent is covering all the possible angles, Van der Merwe suggests asking them to explain how they reached their conclusions. "If they don't mention any of the influences above, you may want to take their recommendations with a pinch of salt, or find yourself an agent with a broader outlook."

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