No economist or researcher called their 2008 forecast correctly.

In fact, nobody could have predicted the government would let a large financial institution fail, nor be prepared for the panic that ensued. While various firms, including Fannie and Freddie, were being bailed out, policymakers seemed to disregard the interconnectedness stemming from the Lehman Bros. collapse.

“In the absence of Lehman Bros., I don’t think things would have been as bad as they were,” says Ryan Severino, senior economist and associate director of research at New York–based Reis. “I think that’s the catalyst that caused the worsening to further.”

But hindsight is surely 20/20—looking back at the crisis now, there were some signs that are actively shaping the way economists formulate their predictions today. An overheated environment where everyone chased yield down the rabbit hole messed up pricing, and buying assets at ultra-low cap rates proved futile once the market deteriorated.

Plus, deals based on early forecasts just didn’t work out.

“[And] what probably should have been a warning sign was the big spike in conversion activity,” Severino says. Seeing outsized returns when turning apartments into condominiums was a clear warning sign that things were a bit overheated.

“I’m not sure predictions were wrong so much as buyers often used too much leverage,” says Jon Bell, president of Bell Partners, in Greensboro, N.C. “Buyers also often assumed, incorrectly, that interest rates wouldn't go lower; therefore, they locked in longer-term debt that ultimately turned out to be above-market interest rates several years down the road.”

But economists aren't shy about what they do. Despite an industrywide flop regarding the Great Recession, their forecasts are incredibly accurate over a normal three- to five-year period. The models, also, don't ignore real-time changes that occur in the market, even though they rely heavily on historical data.

But therein may lie part of the problem.

“No one’s going to predict that kind of stuff; it’s a 70-, 80-year problem,” Severino says. “I think that’s one of those things that is just a random event that’s difficult to predict.”

While the economy does go through wide cycles, apartment data goes back only so far, maybe about 40 years. No one is able to go back and see what happened to the apartment industry during the Great Depression, for instance, but such data may have provided valuable insight for today's owners. Still, anomolies happen.

“That’s why I think they missed it,” says Richard Warner, executive vice president and chief credit officer at Bethesda, Md.–based Walker & Dunlop. “The severity of the recession was so far out of the norm. … I don’t think the market data hurt anyone, per se; what caused the problem was lenders lost sight of basic underwriting and basic market fundamentals.”

The complete shutdown of the financial system was unprecedented, adds Greg Willett, vice president of research and analysis at Carrollton, Texas–based MPF Research.

“Frankly, the world changes,” Willett says. “Sometimes, you get a more realistic forecast using a short forecast even if you went back to that whole 20-year time span. Sometimes, it’s more beneficial to look at a short time period when you’re in a similar space in the cycle than to look at that whole cycle.”

The recession may be in the past now, but various lessons forecasters learned from it  influence how economists sum up their predictions today.

“Once you move on from [a recession], some things are a bit more reflective and there’s a more normalized environment,” Severino says. “By the time we got a few years removed from [the Great Recession], I think the forecasts got to something a bit more normal.”

For part one in our look at how housing economists construct their forecasts, visit