Prediction and Change

I’ve been thinking a lot recently about the mistakes I make in predicting things. Often I will just observe a trend, and then extrapolate that trend into the future. This will be my prediction. The world doesn’t work like that though. Trends will last for a while, but then something changes, and before you know it the world has changed direction.

I want to think more about how and why a current trend could change direction. For example – what would it take for the trend of rising property prices in London to change direction?

At the moment I can think of three things that would cause this to happen:

Firstly if interest rates were to rise a lot, this would cause a lot of over-leveraged people to fail to pay back their mortgages. Which would force a lot of people to try and sell, which would cause house prices to fall. This scenario seems unlikely currently with interest rates at the zero lower bound. Mortgage rates may rise however, if credit risk starts to rise – if people are perceived as being less likely to pay back their mortgages.

Secondly, if telecommuting were to become the predominant way of working, the populus may prefer to live outside the city – especially if the cost of buying property was too much for the average person. It does seem as though companies are starting to embrace telecommuting a bit more, so this scenario may come to pass.

Thirdly, if cities become unattractive for another reason, such as the rise of terrorism, or an epidemic of some sort.

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