In a people business, what are the leading indicators of change?

Please forgive the opening of this entry if your are not a business person. Hang in there and read through it and you might find something useful.

The majority of businesses have metrics that you can track and over time determine what measurable things indicate trend changes in the business cycle. In the semiconductor business, if you are a chip maker, you look for changes in the fabrication equipment manufacturers business. If the book to bill of that sector is increasing then it is likely that orders for chips are increasing and as a chip maker you might expect your orders to increase. Not convinced that is going to change a trend in orders? Well, look to the end line businesses your chips design into and what is happening with their business. Growing, shrinking, bifurcating ? (I love that word – it means to divide into two branches)

What I am saying is that in most cases, a business can find measurable data that can consistently establish leading indications of change. Forecasting is critical in resource and capital planning for successful businesses.

What if you are in a a people business? What are the leading indicators of change in behavior of people? This is much harder to determine.

If you read my blog you know I am in the real estate business. We are a people business. Yes we have inventory models and past sales history and absorption rates and pricing trends but all of these are post indications of behavior.

No, in a people business, the thing that determines change in the market conditions is the mood and psychology of the consumer, mostly the buying consumer.

Case in point. My area in California which covers 3 counties, is in a historically low inventory position. We have been for more than 2 years. Currently the number of single family homes available in all 3 counties is 1/3 of what would normally be a balanced inventory for just one of them. The basic law of supply and demand, when all things are normal with regard to buyers mood and psychology, should produce increased prices of the homes available for sale. In other words, if demand remains constant and supply is restricted, then prices go up. For two years now this has been true. Our area has seen double digit appreciation year over year. Buyers that bought 6 and 9 months earlier are refinancing because of a drop in rates and are being surprised by the increase in value indicated on their new appraisal.

But something is changing. And the difficult part is we can’t measure it because we are in it while it’s happening and it’s not tangible. We won’t know for fact until it is well behind us. Makes forecasting kind of tough right?

Over the last month the interest level as typically measured (open house attendance, requests for seller disclosures, follow up from agents for their buyer clients asking when a seller may be taking an offer) has remained consistent, but the offers are not showing up.

Homes were selling in about 7 to 8 days virtually 100% of the time for the last two years. It was the norm to receive 5 or more offers, often up to 20 for every single home listed for sale. In the last week I have seen 6 separate cases in which all regularly indicating measures would lead to a conclusion of at least several offers being delivered as expected and then…..nothing. No buyer steps up and writes an offer.

This is interesting and it’s an opportunity for those in my business to really observe and learn and figure out how to adapt earlier in the cycle of change but most won’t even think about it until it’s too late.

To be a leader in my business I have to craft narratives that are not only accurate but resonate with sellers and buyers. I can only do that if I am in tune with the mood and psychology of the people that drive my business. This is the art part of my business, how do people affect what you do?

Pay attention to people and how they are moving and you might learn about how they will respond to your work.

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