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Using Data to De-Risk Decisions
Peter Goldstone, CEO / Hanley Wood / August 14, 2013
I was speaking with Metrostudy chief economist Brad Hunter at a recent company gathering, and he told me a story that brought the housing bubble into perspective. He said that during the bubble years of 2002-2005, demand was “illusory” because many builders, developers and lenders had no idea how many homes being sold (even in their own projects) were being bought by people who had no intention of ever living in the homes.
Now imagine if builders, developers and lenders had paid closer attention to their data. Would they have continued to build and lend at a break-neck pace? As the negative effects of overbuilding became evident, their need to analyze data became more important.
Metrostudy looked at its data on finished, vacant months of supply and developed a formula for builders and lenders to mitigate risk. Any more than 3.0 months of supply of “see-through” homes was correlated with steep price declines. Building and development activity was adjusted based on data and risk was reduced.
Brad shared an interesting anecdote from a banker who approached him at a conference about a year ago. The banker said, “I have been a Metrostudy subscriber since before the boom, and in late 2004, I went to my bank’s board and told them that we should slow down [lending to the builders and developers]. Puzzled, they asked me why, since the builders were still selling homes, and they were all CLOSING. I showed them the Metrostudy data that indicated that people were not moving into the homes that were closing, and then they got it. Your data was the canary in the coal mine for us.” That was a smart business decision made based on fact, not hype. That is how data and analytics from true experts can help diminish risk.
Today, builders, lenders and developers are paying close attention to the data as new risk factors have emerged. One of the key risk factors is: are there too many lots? In many submarkets, there is still an overhang (high risk), while in many others, there are shortages of lots (low risk). Metrostudy’s granular, submarket-level data can identify the level of risk and, thus, shape investment and build decisions.
Data, analysis and insight help to mitigate risk, and not just for builders, developers and lenders. The financial sector has entire departments devoted to risk management, and with the explosion of social media, demand generation, CRM systems and digital marketing, savvy marketers must utilize data to gain insight about their customers and to determine what technological investments will result in the greatest ROI.
What data are you missing in your risk management strategy? As always, I look forward to hearing from you. You can reach me at firstname.lastname@example.org.
Here are a few articles I recommend:
To Figure Out Where Real Estate Is Headed, Start Driving
Christopher Power from Bloomberg/Businessweek speaks with Metrostudy chief economist Brad Hunter about identifying the positive and negative signs when considering buying in a new home development
Five Ways Marketing Directors Can Use Big Data
Big Data affords novel opportunities to deliver targeted customer experiences based on in-depth insights. This will enable businesses to develop relationships with customers and keep them engaged over the long term.