A Comparative Analysis of the Accuracy and Uncertainty in Real Estate and Macroeconomic Forecasts

Abstract

We compare and contrast the accuracy and uncertainty in forecasts of rents with those for a variety of macroeconomic series. The results show that in general forecasters tend to be marginally more accurate in the case of macroeconomic series than with rents. In common across all of the series, forecasts tend to be smoothed with forecasters underestimating performance during economic booms, and vice-versa in recessions We find that property forecasts are affected by economic uncertainty, as measured by disagreement across the macro-forecasters. Increased uncertainty leads to increased dispersion in the rental forecasts and a reduction in forecast accuracy.

Modelling sustainable rents for estimation of long-term or fundamental values of commercial real estate

“…Since deviations from sustainable rental value can be construed as medium-or longterm forecasts of how real rental values will change, evaluation techniques used in real estate forecasting studies are relevant, albeit this literature often examines shorter time horizons. There are numerous studies on real estate forecasting and its accuracy (e.g., Chaplin, 1999Chaplin, , 2000Ling, 2005;McAllister & Nasr, 2020;McAllister et al, 2008;Papastamos et al, 2015Papastamos et al, , 2018Stevenson & McGarth, 2003;Tsolacos, 2006). This research suggests that rental value forecasts have been more accurate than capital value forecasts.…”

Economic uncertainty and direct property performance: a systematic review using the SPAR-4-SLR protocol

“…Positive changes in EPU cause a more significant impact than negative ones (Wadud et al ., 2022), making policy interventions a potentially viable avenue to support the residential property market during periods of high uncertainty. Incorporating an uncertainty index in analyses of residential market returns potentially reduces forecast errors by up to 40% (Christou et al ., 2017; Marfatia et al ., 2022; Papastamos et al ., 2018).…”

Macroeconomic Uncertainty and Predictability of Real Estate Returns: The Impact of Asset Liquidity

“…Relatedly, Beracha, Freybote, and Lin (2019) demonstrate that changes in commercial real estate sentiment, as reflected in survey results that ask respondents to rank investment conditions in commercial real estate markets, can predict changes in the ex ante risk premium for directly held returns. Extending beyond sentiment, Papastamos, Matysiak, and Stevenson (2018) compare forecasts of rents, and capital and total returns, with those for various macroeconomic series. They find that such forecasts are affected by economic uncertainty, as measured by disagreement across macro-forecasters, where increased macroeconomic uncertainty leads to decreased accuracy in their estimates.…”