Be wary of high numbers from low bars

by MPA07 Jan 2015
By David Lykken
Special to MPA

Now is the time of year that we start to make predictions about what is going to happen in the housing market. As leaders in the mortgage industry, it can be important how we process the information regarding the forecasts for the next year. Following the wrong advice could lead us to take poor risks or, conversely, not to take good ones.

I recently had the opportunity to interview Logan Mohtashami, a loan originator who has had tremendous success predicting the housing market, and he brought up a good point about overly optimistic predictions. Sometimes, what looks like tremendous growth is actually not that great because the baseline against which the growth is measured is so low. Purchase applications, for example, were so low in 2014 that a year-over-year growth rate of 5-10% still isn't going to be much better than we were in 2013. The lower the bar, the less stock we can put in the growth rate.

So, why does all of this matter? Well, when you're following the financial news and setting your goals for 2015, you might want to be careful about getting carried away by the predictions based on these expected growth rates. A percentage is only as valuable as the number out of which it is taken. As you continue into 2015, take some time to dig a little deeper to find out what the numbers really been and how much growth you can really expect. It can save you quite a lot of missteps down the road.