Understanding Market Analysis And Why It's Your Cup of Tea
PahRoo Chicago Appraisal & Real Estate Consultancy
Solving complex real estate valuation puzzles so our clients can make confident decisions today that transform tomorrow.
What is Market analysis?
Let's get back to the basics.
The interaction of demand and supply for your service is a market. Basically, you supply goods or services to satisfy the demand of buyers in return for a fee.
Now...
Market analysis is consciously watching the demand and supply curve for that particular good/product or service in a geographical area and market participants.
Watching The Market
In this case, it's simply knowing the rules of demand and supply and using the current market to make strategic decisions in your business.?
As demand for your product increases, so will price – in most cases. And when fewer people want your product, you have to reduce its price to raise it.?
Essentially, price is directly proportional to demand, whereas it is inversely proportional to supply. Therefore, the price at which the demand equals supply is known as the equilibrium price.
Market Types
The market can be divided into two:
The macroeconomic?market?involves general parameters like demographics, households, income, unemployment rate, Gross Domestic Product (GDP) growth, inflation (Consumer Product Index (CPI)) changes, interest rates, and oil price changes. It can be in an international, federal, state, or local market. Market analysis at these levels shows the feasibility of buying and selling goods or services based on demand, supply, and affordability.
Specific?markets include the stock market, and real estate market, among others.
The market can be classified into?efficient?and?inefficient. An efficient market is where the products are easily made and transferred, usually between knowledgeable buyers and sellers. On the other hand, an?inefficient market?has products that are difficult to produce or distribute and an uneven flow of information among buyers & sellers.
Real estate is a prime example of the latter, while the NYSE is a typical efficient market. For example, you can't build a house and sell it within a week – it takes even way longer (that's inefficient). But you can trade a stock within a day (efficient).?
The Real Estate Market (Our Specific Market)
Real estate is a market where you trade land and buildings (collectively known as properties), and brokers and agents mediate it.?
Properties are classified as an investment or consumer goods – when it's mainly for residing. That's why they're further classified into residential, office, retail, and industrial.?
领英推荐
Identifying The Demand and Supply of Consumer and Investment properties
How to tell the supply market – Some of them are existing properties and new properties for sale/lease, vacancy rate, net absorption, listing price, showing time, and no. of showings.?
How to tell the demand market – Quality and competitive properties in desired locations, sale price, rent, occupancy rate, and market time.
Real Estate Life Cycles
A property typically goes through four life cycles or stages. They are:
First, is the?Expansion?stage is when an area sees increased development leading to rising prices and fast transaction time – a highly profitable market.
Contraction?is the second stage when growth slows. You experience a dip in profit, and supply hardly gets sold.
Thirdly, in the?recession cycle,?properties perform abysmally and show signals such as decreasing home prices, fewer bids leading to a longer stay on the market, and deals are generally not profitable.
Recovery?is the last stage when the market stabilizes, experiencing equilibrium price and returning to the first stage of expansion. And the cycle continues.
Common Factors Affecting Real Estate Transactions?
Why Market Analysis Should Be Your Cup Of Tea
Whether you're investing, buying, or a service provider, market analysis is an essential step for success and a no-brainer in real estate.?
With a simple Zillow market research, you can get an idea of your property's marketability. You'll see your real estate's average demand, supply, and price in real time. But professionals and investors go a little deeper to uncover the juiciest possible deals.?
It's not a giving, but it gets the best results.?
Good researchers painstakingly sieve through market participants based on simple but vital features. Some of them include demographics, household income, the price based on the interaction of demand and supply, and the real estate life cycle. This way, the goal of capital gain or profit from its sale is more feasible.
It's why successful agents, consultants, investors, forex traders, or businessperson manages to stay in business despite the fantastic improvements in AI and tech. Never skip out on a thorough market analysis before you carry out a big spend, regardless of its purpose. Trade needs a human touch.?
Like, share, or comment (all preferably) if you found this post helpful or want to share your thoughts.?