One of the reasons why I'm bullish on real estate coming out of the pandemic is due to a real estate online pricing upgrade cycle. As someone who has been diligently tracking real estate outperformance examples during the pandemic, I've noticed something extremely lucrative for real estate investors.
Redfin and Zillow online pricing valuation estimates likely need to be adjusted upwards. Real estate demand has been very strong since the pandemic began.
Wall Street Analyst Estimates And Online Real Estate Pricing Estimates
There is a parallel that has significant implications for the real estate market. When it comes to publicly traded stocks, Wall Street analysts set quarterly or yearly profit estimates. If a company beats consensus estimates, the stock will likely go up and vice versa.
When it comes to real estate, I see online pricing estimates by Redfin, Zillow, Opendoor, Quantarium, Collateral Analytics, CoreLogic, and others as similar to Wall Street analyst estimates. There is a current real estate online pricing upgrade cycle that's happening. It is similar to a Wall Street earnings estimate upgrade cycle.
Given 90%+ of potential homebuyers first search for homes online, it's safe to say the adoption of online pricing estimates to make more informed decisions is increasing.
What I've noticed over the past 12 months is that the pricing algorithms of Zillow and Redfin cannot keep up with the bull market in real estate. In other words, their pricing estimates are often too low compared to the ultimate selling price.
Therefore, we could see a self-perpetuating real estate pricing upgrade cycle which will fuel even more real estate demand. Eventually, pricing will hit a wall and start to fade. However, this seems unlikely at least this year.
Online Real Estate Mispricing Example
Below is a mispricing example I use in my latest post, How To Use Bad Pricing Estimates By Zillow And Redfin To Your Advantage.
This home in SF sold for $413,584 or 13.7% more than Redfin's estimate in late February 2021. Unless Redfin wants to lose the trust of its users, it will have to upgrade this house's pricing estimate and all the other houses nearby to reflect this latest market-clearing price. This in turn forces buyers to pay more, especially with inventory down. Hence, a real estate online pricing upgrade cycle.
Eventually, the real estate pricing upgrade cycle will bring on enough sellers to slow pricing down. Then the cycle will repeat. If you or a company can figure out a way to diligently track this online pricing cycle, you or a company could make a lot of money.
The real estate online pricing upgrade cycle will likely last for at least another 12 months. Therefore, I still believe there is a very large window of opportunity for investors to buy rental properties and invest in various real state crowdfunding deals across the country.
Beware Of Mortgage Rates Rising
Please be aware the average rate for a 30-year fixed mortgage finally rebounded above 3%. 3.02% is still a great rate. However, the average rate for a 15-year fixed at 2.34% sounds much better. Check out Credible, my favorite online lending marketplace for competitive no-obligation quotes.
If the 10-year bond yield reaches 2% in 2021, I expect there to be a sell-off in the stock market by about 10%. During this scenario, demand for real estate will also slow down at the margin. The average 30-year fixed rate will rise to about 3.375%.
However, real estate also tends to outperform stocks the most when the S&P 500 is down 10% – 15%. Therefore, I still think owning real estate is the way to go for the average American.
If you want to move to a different state or buy property in a different state, you can get a mortgage in one state and buy property in another state. Your financials just need to be up to snuff.
Achieve Financial Freedom Through Real Estate
Real estate is my favorite way to achieving financial freedom. It is a tangible asset that is less volatile, provides utility, and generates income. I believe the real estate online pricing upgrade cycle will be in full swing. Therefore, it's good for investors to take advantage.
In addition to buying a primary residence and investing in rental properties, take a look at my two favorite real estate crowdfunding platforms. They are free to sign up and explore.
Fundrise: A way for accredited and non-accredited investors to diversify into real estate through private eFunds. Fundrise has been around since 2012 and has consistently generated steady returns, no matter what the stock market is doing.
CrowdStreet: A way for accredited investors to invest in individual real estate opportunities mostly in 18-hour cities. 18-hour cities are secondary cities with lower valuations, higher rental yields, and potentially higher growth due to job growth and demographic trends.
I've personally invested $810,000 in real estate crowdfunding across 18 projects. My goal is to take advantage of lower valuations in the heartland of America. My real estate investments account for roughly 50% of my current passive income of ~$300,000.
Overall, real estate is less risky than stocks. As you get older and wealthier, you will appreciate more the value of real estate's reliability in producing steady income.