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How can I solve this case through a market sizing approach? Case: Market size of real estate in the US
Overview of answers
Hi Firas,
first of all I would ask the interviewer to clarify whether the market size is in
- Dollar term
- Number of house sold (volume term)
Also when we say real estate, I would ask whether this include only new houses sold around the country or also the rent market.
Let us assume no rent market included
One approach ("top down") could be
- Start from US population
- Come up with a # of people x household
- # of houses = US population / # of people x household * (I am assuming a tiny percentage of people lives under a bridge etc... not uber precise)
- Now you should make an hypothesis about the % of house ownership in the US (lower than europe I guess) to segment the market of people that have a house
- YOu can now use the "useful lifetime" rule and come up with an avg. number of years in which people stick with the same house (you can segment population if a single number is too rough)
- House sold / bought every year = Total House owned in US (see above) / avg. # of years people stick with the same house
This is just the "real estate - buy a house" market. I think you can now imagine how to size the rent part
Alternative possibility is to start with population, segment by age and assing a # of house per age bracket (e.g. no age below 18) and the once again go through the house ownership / house renting % to get to the market size.
Hope this helps.
Write me if not super clear.
Regards,
Paul
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
- 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
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