How to Analyze a Market

Question

So I'm, trying to analyze a market to invest in. I've heard that job growth and population growth are two important factors (i.e. you don't want to invest in a town where the population is declining 7% per year and job growth is negative).

Here's what I'm wondering:

Let's say you look at historical data and finding that Houston, Texas had 15% population growth (for example) over the past 5 years. Ignoring other factors, is that good? Or does it mean that you missed the bus for investing in Houston, and the population growth is likely to slow and regress towards the mean? I know there's a lot of factors involved in determining a market's desirability for investments, but on a very basic scale, is finding historical data that reveals such strong metrics in a market a sign to invest, or does it signal that the market is now hot?

Tom Shallcross · Answer

@Derek Morrison - great question.  Joe Fairless does a great job of outlining all the different factors to consider in a market.  More direct to your question, he also provides great resources.  Below are some of his recommended reports and a few of them not only present data from recent history, but also provide a forecast for the near future:

Marcus & Millichap’s Annual US Multifamily investment Forecast

CBRE Biannual Cap Rate Survey

IntegraRealty Resources Annual Viewpoint Commercial Real Estate Trends Report

Zillow Annual Consumer House Trends Report

RCLCO Quarterly State of Real Estate Market

PwC Annual Emerging Trends in Real Estate

Alina Trigub · Answer

@Derek Morrison

There're many other factors to consider when analyzing a particular market's cycle and what stage it's currently at. Here's a post to help you with that: https://www.biggerpockets.com/member-blogs/10850/8...

What's helpful is: getting intimately familiar with the market and studying it years back in addition to current development, comparing it with other markets to see the difference. Reaching out to the City to see the number of new construction permits, evaluating the area infrastructure, state of the market economy, determining whether the major industries players (aka employers) will remain intact due to Amazon effect, etc.

My best!

Theo Hicks · Answer

Use macro market factors like job growth and population growth to select a city/MSA. Then, learn more about that market to select a few neighborhoods to target (following the strategy outlined by @Alina Trigub)

Cody L. · Answer

If 5 years of population and job growth is worrisome because you maybe missed the boat, then that would mean that 5 years of population and job loss is great as you’re getting in on the ground floor.

(Both are wrong as you suspect).

Job/population growth is a sign that the area is doing something right. I’ve exclusively invested in Houston. multifamily has been on a rocket. Part of me wishes for a crash as I’m more of a buyer than a seller but since all indicators point to more growth I don’t see it happening

Shahriar Khan · Answer

@Derek Morrison spend time ...on census.gov data and you will start seeing trends ...its fun :)

Happy hunting

Andrew Angerer · Answer

Always a good question. While I am no master, I would say look at the jobs report. If you have a lot of new companies coming in then that population growth will probably keep on going. If you have a section that has a ton of old manufacturing or old retail ( Kmart or sears) then I would stay away.

Look where new amazon distribution centers are going in, that may be a good start.

How to Analyze a Market

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