Market Sizing Question: US housing mortgage market ($)

Question

I am looking for ideas on how to structure the following market sizing case:

- US housing mortgage market ($)

All ideas are welcome!

Thanks

Answer 1

I'm thinking about the following approach:

- US Pop = 320mn

- Avg People / Household = 3.2

- US Households = 100mn

- Percentage of house ownership = 60%

- Households on a mortgage = 40mn

- Average household value = $1mn

- Total mortgage debt = $40 trillion

It is a simplification of the problem I thought about as I do not have a deep understanding of the mortgage market.

Answer 2

Pedro's approach is good, yet the assumptions are questionable.

I would put average household size far below 3, more in the direction of 2, maybe 2.5. Makes the math a bit harder, but not terribly so.

Average home value 1 mn? Are you kidding me? I'd assume that it's somewhere around 200-300k.

Also, don't forget that most people don't do a 100% financing, but maybe have 10-30% in collateral.

So with these assumptions (HH-size 2.5, avg home value 250 k, avg mortgage 200k, rest unchanged) I arrive at about 10 trillion.

Cheers

Elias

PS: That answer is A LOT closer to the truth, actually. https://www.marketplace.org/2018/02/13/economy/divided-decade/fed-uneven-housing-recovery-great-recession

Answer 3

Hi there,

Providing some market sizing thinking for anyone revisiting this Q&A:

Remember that there's rarely a "best" answer with market sizing. What's important is that you break down the problem the way it makes sense to you. Importantly, break it down so that the assumptions you make are the ones you're most comfortable in.

For example, do you know all the major brands? Great go with that. Do you understand all the segments of that country's population (either age or wealth or job breakdown)? Go with that. Do you know the total market size of the tourism (or hotel) industry? Then break it down that way.

Some tips:

Just like in a case, make sure you understand the question - what are you really being asked to calculate
Decide whether a top-down or bottom-up approach is best
Figure out what you know you know, and what you know you don't know, but could estimate
1. This helps you determine how to split out buckets
Stay flexible - you can start with a "high-level" market sizing, but gauge your interviewers reaction....if it looks like they want you to do more...then go along level deeper in terms of your splits