un·cer·tain·ty noun \-tən-tē something that is doubtful or unknown : something that is uncertain (Merriam-Webster)
Uncertainty: This reality always exists as a certainty for those that own and/or manage businesses; i.e. the planners.
Too much uncertainty and you will have a business that employs very conservative strategies that rarely includes growth.
Low uncertainty, and therefore high confidence, will allow a business to form strategies that may allow growth, and at the very least, provides an environment where the planners can forecast with accuracy into the future, thereby increasing the likelihood of viability and success for any given business.
Over the past decade, the real estate market has been consistently erratic. Those in real estate have endured home prices skyrocketing, to home prices collapsing, foreclosure booms, refinance booms, builder booms, builder collapses, refinance crashes, interest rates at all time lows, and home affordability has wildly increased and decreased.
A great example of how severe and quick the changes can be in real estate is seen by the change in the 10 Year Bond price during the two month period of the beginning of May of 2013 to the beginning of July of 2013.
The average rate of a 30 Year fixed mortgage strongly correlates the rate of the 10 Year Bond. The rate of the 10 Year Bond went from 1.6310% on May 2nd to 2.715% on July 5th. Correspondingly, the average rate on a 30 Year fixed mortgage went from 3.48% in May of 2013 to 4.52% in July of 2013. As these rates skyrocketed, mortgage applications fell, the refinance boom (boom being a relative term) vanished.
So how does a planner work in an environment like this? In my opinion the key principle to dealing with this constant change is this:
All too often, planners fall to the temptation of thinking they can control or overcome variables in which they have no control, or power to overcome.
The same attributes that make the type A personality an overcomer of difficult obstacles, can make it difficult to know when to see the impossible as the impossible and adjust accordingly.
Uncertainty and erratic market behavior demands that planners not be falsely optimistic and Pollyannaish, but also not be false prophets of doom and gloom. It also demands that the planner be realistic about their dreams, goals, and aspirations.
In my next blog post, I will discuss how this plays out practically in the day to day of operating a business in real estate.