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How can I solve this case through a market sizing approach? Case: Market size of real estate in the US

Firas atoui asked on Aug 07, 2019
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Paul
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replied on Aug 14, 2019
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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

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