When it comes to investing, whether it is in real estate or in stocks, one of the decisive factors to base your investment decisions on is the market analysis.
So, what is market analysis? And how is real estate market analysis different from stock market analysis?
Market analysis is the process of analyzing a certain market, real estate or stock, in order to determine the value of properties or stocks based on a number of variables and dynamics and to base your investment decisions on predictions and comparisons in order for your investment to be as profitable as possible.
In other terms, and as defined by The Business Plan Job:
“A market analysis is a quantitative and qualitative assessment of a market. It looks into the size of the market both in volume and in value, the various customer segments and buying patterns, the competition, and the economic environment in terms of barriers to entry and regulation.”
So, how is real estate market analysis different from stock market analysis?
The most important difference between real estate market analysis and stock market analysis is tangibility.
Related: Why More Americans Prefer to Invest in Real Estate
While real estate deals with tangible properties that you can see and touch, the stock market deals with intangible bonds in the form of digits and numbers.
This is the major factor that makes real estate market analysis different from stock market analysis.
Stock Market Analysis
According to Investopedia, “Stock market analysis refers to the evaluation of a particular trading instrument, an investment sector or the market as a whole.”
There are two types of stock market analysis:
- Fundamental analysis
- Technical analysis
Stock market analysts can use both types of stock market analysis, although most choose to go with one and not the other.
This type of stock market analysis attempts to measure the intrinsic value of securities. This is done through the examination of economic, financial, and other qualitative and quantitative aspects. Analysts who use the fundamental method will take into account all factors that can affect the security’s value. This includes factors such as the overall condition of the economy or industry, as well as the financial and managerial state of the company.
The purpose of fundamental analysis is to provide a quantitative value to the investor in order to compare with the security’s current price, and to provide a conclusion of whether the security is overvalued or undervalued.
This type of stock market analysis attempts to evaluate securities and predict their future movement. This is done through the analyzing of statistics gathered from trading activity, such as the movement of price and volume.
While fundamental analysis focuses on the intrinsic value of stocks, technical analysis employs charts and other analytical tools in order to determine the security’s strength or weakness, and in order to forecast any future price changes.
Stock market analysis relies on future forecasts and predictions that are based on a large array of variables and dynamics. It should be noted, however, that these predictions are never completely accurate, as the number of factors that may affect these predictions is too large for all of them to be taken into account and predicted precisely.
This makes investing in the stock market riskier than investing in the real estate market, as stock market analysis requires an extensive amount of experience and knowledge, and the decisions made in the stock market rely heavily on predictions and forecasts that can sometimes be inaccurate, making it more difficult to plan your investments in the long term.
Real Estate Market Analysis
When it comes to real estate market analysis, the variables and dynamics that are taken into account are often more accurate and easier to forecast than those of the stock market. Additionally, real estate market analysis does not need an expert to conduct it. Any real estate investor is able to carry out a market analysis for his/her investments, and this market analysis is more local and area restricted than the stock market analysis.
The biggest difference between the real estate and stock market analysis is that real estate market analysis relies heavily on comparison.
Related: How to Perform a Real Estate Market Analysis
This means that in order to do a real estate market analysis, you would have to compare different properties of similar or different types to one another in order to determine the true value of a property.
When analyzing a property, there are a number of factors to be taken into account, some more objective and other more subjective characteristics, such as:
- Area and neighborhood
- Size or square footage
- Land area
- Number of bedrooms and bathrooms
- Other rooms
- Number of floors
- Construction age
- Amenities and features such as swimming pools, gardens, fire places, balconies, etc.
- Location with regards to roads, grocery stores, public transportation, schools, etc.
- Recent improvements and developments
These are all factors that can affect a property’s value, and they are all taken into consideration when conducting a real estate market analysis.
Related: How to Do a Nationwide Real Estate Analysis
Additional steps to analyzing a real estate market may include comparisons to recently sold, pending, and expired property listings, as this data can provide you with additional info that you can base your investment decisions on.
When it comes to real estate market analysis and stock market analysis, they are one of the deciding factors to base your investment decisions on. They can both predict the value of an investment by forecasting returns and profits through analyzing past, present, and future data, or by comparisons between similar types of properties.
Real estate market analysis, however, can be more reliable and easier to conduct than stock market analysis. This makes the real estate market easier to get started in, as the analysis of the housing market can practically be done by any investor, new or experienced, which reduces the risk of making bad investment decisions.
Additionally, there are tools that can help you with your real estate market analysis, saving you a lot of time and effort, such as Mashvisor, which can be used to quickly analyze real estate market nationwide.