Real estate is one of the safest and most secure investments out there. This does not mean, however, that all real estate purchases are good investments. Whether you’re an investor, first-time home buyer, or realtor, knowing how to analyze the housing market will help you find a quality property at the right price. This article will look at why housing market analysis is important and how you can most efficiently create a housing market analysis to benefit your business or investing strategies.

What is real estate market analysis, and why does it matter?

Also known as comparative market analysis, this process helps you better understand current property values. It is different from a home appraisal, which a licensed appraiser creates. Market analysis can be done by agents, investors, and consumers to evaluate how similar properties compare in value.

By having a comprehensive understanding of the market before buying or helping someone buy, you can ensure that you are acting in your best interest. Analyzing the current housing market can help you avoid making the wrong investment move.

Understanding market factors

Analyzing the housing market may seem like a daunting task, but you will quickly understand how these pieces fit together when broken down into bite-sized bits of information. At its core, market analysis is just determining how much value is given to a particular property. Here are some factors that come into play:

• Location, location, location: Where a property is located has a significant influence on its value. Things like crime levels, schools, public transportation, and accessibility impact demand and market value.
• Lot size: Land is an invaluable human resource. Even the slightest difference in lot size can make a difference between two otherwise similar properties.
• Age and condition: Homes that have been recently built or recently renovated are typically higher-priced properties. However, older, historical homes that have been updated are also sought after real estate purchases.
• Unique features: Does the home have any special amenities such as a home office, gym, screened-in patio, finished basement, fireplace, or swimming pool that could increase the property’s value?
• Number of rooms: The more bedrooms and bathrooms a property has, the more valuable it is.

Tips for analyzing the housing market

Housing market analysis isn’t just for the pros. Anyone can successfully conduct their own research with the proper guidance. Here are some tips for creating your own property market analysis:

• Look at the property’s history

The history of a property can tell you a lot about where it is going. You can use online platforms such as Zillow or the National Association of Realtors to see how much a property has sold for. The county’s public records website may also have information regarding any work, liens, or zoning violations associated with the property.

• Gather data from multiple sources

Looking at one source of information is not enough. That source could provide biased or cherry-picked information that doesn’t allow you to see the full picture. The broader your pool of data, the better. You can check out local newspapers, community websites, social media platforms, and public records to gather a wider breadth of knowledge.

• Determine your investment strategy and research accordingly

When gathering information to conduct a housing market analysis, know how you want to use the results to benefit your business or buying strategy. This will help you choose the best market or help you adjust your approach to the market. Consider factors such as:

• Type of properties in demand

• Types of jobs and where they are located

• Inventory levels

• Rentals vs. primary residence trends

• Where the active agents and investors are going

How to conduct housing market analysis

Identify the neighborhood and region

To begin your housing market analysis, start by identifying your target neighborhood and region. From here, you can begin digging into the inventory, demand, and demographics of those looking to buy in that area.

Select your sample pool

Once you have gathered some information about the area, you can select the properties you will use in your sample pool for your market analysis. Start with at least six properties currently listed on the market to compare. These should be similar in various ways, including neighborhood, the number of bedrooms and bathrooms, square footage, lot size, build dates, architectural design, and the number of floors.

Calculate average pricing of the sample pool

Take these properties and plug them into a spreadsheet that lays out all of the relevant features you used when choosing them. In the first column, write out the address. Then, create more columns for listing price, number of bedrooms and bathrooms, square footage, etc. Once this is complete, calculate the average square foot of each of the properties.

Make adjustments

At this step, you will note the differentiating factors of each property. This will include any unique amenities or any features that add or take away from a property’s value, such as a swimming pool, new roof, outdated HVAC system. This will help you calculate more accurate price points.

Look at the big picture

It’s very important to pay attention to the micro factors that affect a property’s micro value. It is equally important to look at the overall trends that affect value levels at the state and national levels. Is high demand for single-family homes predicted to continue? What commercial properties are people after? Asking these broader questions can help guide you in your investing strategy.

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References:

1. Forbes
2. Rocket Mortgage
3. Passive Real Estate Investing
4. Realty Biz News
5. Roofstock