Forecasting the repossession rate

There is a little known group called WPM who have been active for 26 years. In 1998, they helped the British Government avoid a recession whereas Europe and the USA succumbed to it in 2000/01. Since then, these economies were propelled into the stratosphere and crash landed in August 2007 with what has become the worst economic disaster since the Great Depression that followed the 1929 stock market crash.

In 2008, the WPM plotted data from the UK economy on a graph and predicted that it would turn around in the 1st quarter of 2010. In December 2008, it forecast that the repossession would be around 50,000 homes in 2009. The Council of Mortgage Lenders (CML) forecast 75,000 homes will be repossessed.

In the 1st Quarter of 2009,  12,700 home were repossessed which gave an annualised rate of 50,800. In the 2nd quarter, the CML reduced their forcast to 65,000 and late in the 3rd quarter, revised it again to 48,000. In 2009, only 46,000 homes were repossessed - lower than the CML's 3rd and lowest forecast and lower than the WPM's optimistic forecast.

Did the CML learn a lesson from all this. No. Their forecast for 2010 was 53,000 - still in an upward trajectory. The WPM didn't make any forecast as they were helping the Government to reduce the growth of unemployment and persuading Lenders not to jump on the repossession bandwagon.

However, the WPM were persuaded late in the 1st quarter of 2010 to make a forecast. They jokingly said 32,000 at first but settled on 38,000. They were told that that can't be right because we're in a slump and the figure is lower than 2008 which was 40,000. The WPM responded by saying that that's what you said about our 50,000 forecast back in 2008.

The true reason was, if the WPM's prediction that the economy would turn around in the 1st quarter of 2010, then the repossession rate would be relatively low. Well, we are in the first quarter [at the time] and this prediction has been proved by the actual repossession rate being better than our expectation of 50,000. Besides, a down trend has been established and the next move has to be lower. And they stuck to their target.

When the 1st quarter 2010 repossession came out at 9,800 giving an annualised figure of 39,200, the CML said that they would revise their estimate in the 2nd quarter. This result puts the WPM's forecast within a stone's throw away from the annualised figure.

The 2nd quarter GDP figures were expected to be around 0.6%. When they came out at 1.1%, the president of the WPM exclaimed "32,000 here we come". However, the 2nd quarter repossession was 9,400 which meant now that 32,000 was too far away with only 6 months to go. Besides, the US economy has been falling for 2 quarters and India and China have lowered their growth forecasts. This doesn't bode well for the rest of us. Let's hope that their forecasts are also wrong.

There are 4 pieces of good news:

1. The 2nd quarter repossession was lower than the 1st quarter
2. The CML has lowered its forecast to 39,000
3. The annualised rate is now 38,400 - the 38,000 has come into view
4. June's unemployment figures dipped to an annualised rate of 7.8% from 8%.

The president of the WPM has absolved other forecasters for getting it wrong as they don't influence the outcome whereas the WPM does. Some pundits can understand influencing the outcome in a particular direction but not forecasting the actual figures with pinpoint accuracy.

You may say that the WPM's forecast of the economy turning around in Q1 of 2010 and the repossessions in 2009 were done in hind sight and I can't prove otherwise. Even the current prediction of 38,000 for 2010 will go the same way since the figures from Q1 and Q2 point to that figure.

The WPM has consistently refused to forecast unemployment figures, GDP, output, etc. So, this may be classed as a flash in the pan, well, 3 flashes. The WPM used to predict GDP in the late 1990s and early noughties but has stopped doing so since. Maybe forecasting indicators is less important than achieving them. Perhaps they use them privately as goals to achieve. Your guess is as good as any.

Maybe the WPM will talk about the problems facing the nation and propose potential solutions to get round them. Only time will tell. I'll post any information that comes my way.

Lastly, with all the negativity in the economic press, it looks like the 3rd quarter repossession rate will increase. Let's hope that the employers and lenders pay lip service to this negativity and we get an even lower or static figure for the 3rd quarter.

The next set of figures will come out in November, 2010. So, until then, bye bye.